View from the Observation Deck

1. While most investors have probably at least heard of small-capitalization stocks (small-caps), the majority are likely unfamiliar with the smallest of these publicly traded stocks, known as micro-caps.
2. The parameters can vary as to the market capitalization (market cap) range financial firms use to define micro-cap stocks, but a conservative universe would include companies with a market value of $50 million to $500 million.
3. Because micro-cap companies are so small relative to their small-, mid- and large-cap counterparts, investors should expect them to trade with a higher degree of volatility, both up and down, over time.  Liquidity can also be an issue.
4. The 2007 and 2011 calendar years in the chart provide a good example. Micro-cap stocks declined by a greater percentage than did small-cap stocks (Russell 2000).
5. Today, there are a number of packaged products, such as mutual funds and exchange traded funds, available to investors in the micro-cap space.
6. Packaged products are appropriate for investors, in our opinion, because micro-cap stocks do not receive the same level of analyst coverage on Wall Street as their larger counterparts. So professional management/selection can add value.