- Know What You Own – Understand the company behind the stock and have a firm understanding of the business it is in.
- Know Why You Own It – Understand why you are investing in the company and what their plans are to increase sales.
- Know the Management – Ensure the company is flush with vision, focus and commitment, and do some sleuthing to find out.
- Know the Balance Sheet – Be wary of high debt loads, and understand how the company is generating earnings and cash flow.
- Spread Out Risk – Invest in four or more stocks, with potential risk spread out by number and allocation of each stock’s cost.
- Avoid Big Losses – By managing risk, you’re giving yourself the opportunity for one or more big wins, while avoiding the big loss.
Original full length post is available at The Momentum Letter – How to Mitigate Risk When Investing in Microcap Stocks