Feel the stock price chart of NIO, one of the new forces. Its stock price reached a low of 1.19 yuan per share in 2019, and then gradually rose to a peak of 66.99 yuan per share in 2021, an increase of 56 times. If you add more leverage, the wealth effect It is very obvious that many people did make a lot of money from the rise in NIO's stock price at that time. Of course, Weilai's stock price gradually returned to normal, but it still rose several times from the lowest value.
What is a small-cap strategy?
The small-cap stock strategy refers to choosing stocks of companies with smaller market capitalizations to invest in the hope of obtaining higher returns.
The market capitalization factor is a long-term effective source of excess returns, and stocks with small market capitalization are more likely to bring excess returns. Here’s why:
Small-capitalization stocks are usually very cheap, with fewer shares in circulation, and can easily be pushed up violently.
Small-capitalization stocks rise quickly and have obvious wealth effects, which can easily lead to following-the-trend speculation.
Skyrocketing gains in small-cap stocks usually occur under the following circumstances:
When sectors rotate, small-cap stocks will rise higher.
When market risk appetite tightens, small-capitalization stocks tend to be significantly undervalued; when market risk appetite increases, small-capitalization stocks’ valuations recover quickly. To put it in layman's terms, it is so easy for small-capitalization stocks to double in a bull market, but in a bear market small-capitalization stocks will fall.
Any piece of good news may cause the stocks of small-capitalization companies to skyrocket, such as a certain patent, a large order, or being acquired at a premium.
Of course, the risks of small market capitalization strategies are also obvious:
Small market capitalization companies have poor risk resistance and are more susceptible to the impact of the market and macroeconomics than large companies.
Small market capitalization companies have unstable financial conditions, large revenue fluctuations, and high delisting risks.
Information disclosure of small market capitalization is not standardized, investor information is asymmetric, and investment decisions are easily misled.
The liquidity risk of small-cap companies is high. The stock price has a price but no market. It is easy to smash the market when selling in large quantities.
The stock prices of small market capitalization companies fluctuate greatly and retracement is high.
When investing in small-market capitalization stocks, you need to pay attention to risk control and asset allocation, and appropriately diversify portfolio risks. At the same time, sufficient research and analysis are needed to select stocks of small companies with potential growth and investment value for investment.
Specific steps of small market capitalization strategy
The small-cap strategy includes several steps such as stock selection, diversification, risk control and selling. details as follows:
Select small-market capitalization stocks and further screen based on the company's fundamentals: Small-market capitalization stocks generally refer to companies with a market capitalization of less than xx billion yuan, and xx can be 10 or other. Conduct financial analysis on the selected small-market capitalization companies to evaluate the company's financial status, growth potential, industry prospects, etc. Choose company stocks with stable financial status, strong profitability, and rapid revenue growth as investment targets. Specific evaluation indicators can include revenue growth, profitability, debt ratio, stock volatility, etc.
Financial health: Choose companies with healthy financial health. Pay attention to the company's financial indicators, such as profits, revenue, debt levels, cash flow, etc.
Growth potential: Choose companies with high growth potential. Pay attention to the company's gross profit margin, earnings growth, market share, new product research and development, etc.
Industry prospects: Choose companies in high-growth industries
Company Management: Choose a company with a good management team. Management’s experience and track record of success are a plus.
Valuation: Choose companies with reasonable valuations. Pay attention to the company's price-to-earnings ratio, price-to-book ratio, dividend yield and other valuation indicators, and compare them with companies in the same industry
Diversification: In order to reduce risks, funds can be diversified into multiple small-capitalization stocks, such as 20 stocks. Furthermore, diversification can be achieved by choosing stocks from different industries, different regions, or stocks with different risk levels.
Risk control: set stop loss lines, control positions, and regularly re-evaluate the investment portfolio, such as regular rotation at the beginning of each month
The timing of selling the small market capitalization strategy depends on the specific investment goals and strategies. You can consider the following aspects to decide when to sell:
Take Profit: Set an expected profit target and sell the stock when the target is reached
Stop loss: automatically sell stocks when the stock price drops to a certain level
Others: Buy when the market environment deteriorates or the company's performance changes, such as when performance declines significantly or market position is impacted to avoid further losses.
Code implementation & conclusion & communication
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