Most investors would agree on diversification in a portfolio, and that asset allocation to equities across the market capitalisation is equally important. However, investors tend to overlook small caps in favour of well-established firms, those that are generally \u2018too big to fail,\u2019 and many would shy away from investing in small cap stocks as they are perceived to be riskier due to its volatility. While every stick has two ends, this article seeks to point out two reasons why small caps are often underrated in the world of investing.Photo by Daniele Levis Pelusi on UnsplashOpportunity for growthEvery company has to start small, and it is never an overnight success. It is far easier for a small company to double in size when compared to a large company. Large cap stocks are often the industry leaders, and generally do not represent the booming or emerging industries. Small cap stocks are often the new players that operate in new industries. By identifying small companies with strong moats that have the potential to speak for the next generation, investors can benefit as these businesses generate higher-earning growth rates and hopefully move up to the mid and large cap segment. Everyone talks about finding the next big thing, and if you have invested a modest amount of $500 on any blue chip stocks at the initial stage, it would have ballooned and made into a small fortune today.Lack of coverageThere are tonnes of resources out there as analysts evaluate and provide coverage over blue chip stocks like FAANG (Facebook, Amazon, Apple, Netflix, Google), WAAX (Wisetech, Altium, Afterpay, Xero), and BAT (Baidu, Alibaba, Tencent), but almost none for small cap stocks. The fact that regulations do not allow financial institutions to invest heavily in small cap stocks (part of it due to market liquidity) could\u2026<\/p>","protected":false},"excerpt":{"rendered":"
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