Whilst Warren Buffet has to focus on large companies when investing to satisfy his Berkshire Hathaway shareholders, the smaller investor can afford to be more agile. 

By looking beyond the usual suspects of the FTSE 100 like Vodafone, GlaxoSmithKline and Royal Dutch Shell you can find companies with much greater potential for the share price to move dramatically. It happens more often than you might think, you just need to know where to look.

Some recent examples to illustrate the point. 

1      Small Companies Can Move Fast  

Take Intelek, with a market cap of less than £30 million it is in the less than sexy hardware, technology and equipment sector, yet in the last year its share price has jumped from 13.5p to 31.5p. £500 invested less than a year ago would now be worth over £1160.  

Another example is Scott Wilson Group. Operating in the support services sector, relatively small once again with a market cap of under £200 million.  

The share price for Scott Wilson Group has moved from 57p in the last year to over £2.55. Yes. You did read that correctly. £500 invested a year ago would be worth over £2230 today, less than 12 months later. 

2.     Don’t Go Large 

‘Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing.’
                               Helen Keller 

Buying small does not mean high risk. Both companies discussed here had a proven track record and both were ignored and neglected by the market for a time, at least until someone else noticed. 

3.     It’s Not Easy To Buy Coca Cola 

Small growing companies may attract the attention of a larger business looking for growth through acquisition.  

This is the reason for the dramatic share price increases for both Scott Wilson Group and Intelek. Whilst large companies can also be taken over, it is far less likely that your shares in Coca Cola will double next week for this reason. 

4.     Look For Small Companies With Big Potential 

Warren Buffet once said that you can’t buy what is popular and do well. To make impressive returns from your investments in shares you need to take a contrarian approach and look for what others have missed or shunned. 

You can use a stock screener to target small cap shares with big potential. Look for consistent growth, strong cash flow, a dividend, quality management and a distinctive capability.  

Small companies with the potential to be tomorrows winners may, at some point, attract the attention of larger investors. Get in there before that happens. 

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie