Interested in micro cap investing, but feeling lost in the finance world? For beginners looking for an entry-level intro to the exciting world of micro cap investing, here’s a brief glossary of the most common microcap investing terms:
Balanced Funds: A mutual fund that keeps somewhere between 50 to 60% of their holdings in stocks and the rest in bond investments and convertibles.
EPS: “Earnings Per Share,” or EPS, refers to the amount of a company’s profit allocated to the outstanding shares of common stock. EPS is also used as a general indicator of a company’s profitability.
GPR: “GeoInvesting Power Rankings,” or GPR, are stock market research tools for identifying micro cap investment opportunities with a high potential for greater returns. A company’s GPR rating is based on the number of quarters that company is projected to see EPS growth of about 30% over the previous quarter. The higher a stock’s GPR, the higher the earning potential. Generally, GeoInvesting recommends micro cap investing in stocks with a minimum GPR of three or four.
Micro Cap, Micro Cap Investing: The stock of a public company with a market capitalization of $50 million to $300 million are called micro cap stocks.
Micro Cap Equities: Between 1926 and 2001, micro-cap stocks had an average return of 12.27% in U.S. micro-cap investing.
Nano Cap Stocks: Companies with a market capitalization of less than $50 million are known as nano cap stocks.
Penny Stock: The U.S. Securities and Exchange Commission refers to any stock valued under $5 as a penny stock.
Publicly-traded Companies: A company that’s issued securities through an Initial public Offering and is being traded on one or more stock exchange.
Pump and Dump Scheme: Pump and Dump schemes gained popular attention in the film The Wolf of Wall Street, which portrayed this unfortunately common micro cap investing scheme. In the classic version of the pump and dump, someone manipulates and inflates the price of a stock they hold large quantities of. When the price rises, they dump their shares at a profit. The SEC frequently busts criminals for falsifying investor information in pump and dump schemes.
Short Selling: Sometimes referred to as “shorting,” this financial practice involves the sale of a security the seller does not currently own. Usually, an investor believes a security will decline in price, and so he or she sells borrowed shares. Then, those stocks can be bought back in the future for a lower price, and subsequently sold back to original lender at a profit.