Professors Thomas Cook and Michael Rozeff of the University of Iowa analyzed thousands of stocks trading on the NYSE, the AMEX and several other exchanges from 1968 to 1978. Micro-cap stocks often get no attention from the Wall Street, but data shows that these stocks often outperform mid-cap and large-cap stocks.
The Russel 2000 micro-cap stocks index has recovered more than 8% since the start of January 2021, which outperformed the large-cap focused S&P 500 1% gain. For instance, from January 2008 to January 2018, the Dow Jones Select Micro-Cap Index returned an annualized 11.6% while the S&P 500 returned an annualized 10.37%.
Investing in micro-cap stocks during an economic recession can offer unlimited growth potential with long-term sustainability as these companies often focus on long-term projects. Despite this, most investors include these stocks in their portfolio as they offer the potential for higher rewards. They tend to burn through cash quickly, losing to their counterparts due to financial instability. Most of these stocks are early growth-stage companies that are more vulnerable to problems arising both internally and externally. Micro-cap stocks have higher risks amid low liquidity and lack of assets. A micro-cap stock has a market capitalization between $50 million to $1 billion.
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