Obermatt CEO Dr. Hermann J. Stern answers questions by his wife Dr. Candace S. Cheng on stock investing as she begins to manage her own portfolio: “Should investors invest in small stocks?”. Yes and no: “Big companies have advantages over small ones,” explains Hermann.
The advantages of large companies are first that there is more scrutiny on management actions. There are numerous professional investors, independent board members and aspiring internal managers. They all want to make sure the company succeeds because they are all vested in the prospects of the company. For this reason alone, larger companies are safer than smaller players. In addition, larger companies are less affected by individual events such as customers not paying, leaving or creating other damage, management and employee issues, natural catastrophes or production and product failures.
Sometimes, small companies are exciting as they are trying new things that you might like. Should you decide to invest in small companies make sure that individual investments are not too large of an investment. Buying many smaller companies has a similar effect as buying a large company because the disadvantages listed above are compensated by the sheer number of investments. This and more is part of this interview section.