If, in 1955, you had invested your savings in a tracker fund that covered the whole of the equity market, each £1 you put in would be worth in excess of £486 (to April 2004).
However, if you had restricted your investment to a tracker fund that bought only minnows, the smallest 2 per cent of companies measured by market capitalisation, each £1 would today be worth £8,123.
It would seem to be a no-brainer then to restrict your investments to the tiddlers that swim around on the bottom of the pond. But, as with all decisions based on such statistics, that would be a dangerously wrong conclusion. Because there is no doubt that if you cast your bait into such murky waters, while there will certainly be a few fine catches, they will be eclipsed by the huge number of tiny fish who, despite their best efforts, are not strong enough to make it to the surface.
By all means do your researches in order to identify possible winners. But a good idea and an attractive prospectus are not enough. Make sure you dig deep and examine such areas as:
These and many other challenges face new companies. Some will survive and thrive. Many will wither and die.
You are here: Help