Smaller vs. Bigger

By | May 15, 2005

I found a very interesting post on Motley Fool about investing in small companies vs. large companies.

It really makes some excellent arguments why big companies are perpahs better for more mature portfolios but you won’t really much because consequential growth rates are considerably smaller than for smaller and growth related companies. After it’s much easier to grow 100 times when you’re only worth $1Billion than when you’re already worth $100 Billion.

Also, smaller companies arent’ so well covered according to the report. So there are opportunities for pricing in information that may not already be included in the market price. There’s another important advantage that one can’t omit, though the writer of the article doesn’t mention this. Mutual Funds may actually be restricted by their regulations from investing in smaller companies, or at their very last by the size of any potential investment by a mutual fund. In many cases, the investment may buy a substantial holding of the company on the market. Mutual Funds don’t typically do this.

So perhaps we should look for smaller size companies to make more investments rather than relying on the duds of the Dow Jones Index and the S&P500.