Our views on financial planning issues - L.J. Altfest & Co., Inc: investment advisors, financial planners, portfolio managers, new york NY

<body topmargin="0" leftmargin="0"> <div align="left"><table border="0" cellpadding="0" cellspacing="0" width="480"> <tr> <td><p align="center"><font SIZE="4"><u><b>Stocks of tiny companies: worth the risk</b></u></font></p> <p>One of my clients called me excitedly. Shed whimsically invested $2,000 in a mining stock selling at $2 per share. Then the company discovered platinum and the stock shot up to $52. Now my client wanted to know what to do. I told her that her ship had come in. She should sell her stock and enjoy her good fortune before the boat sailed in a new direction.</p> <p>My clients mining company belongs to a category called micro-caps. While the average member of the Standard & Poors 500 stock index has $11.5 billion worth of stock outstanding, micro-caps have market capitalizations ranging from a few hundred thousand dollars to less than $250 million. Many of these tiny stocks dont trade on any exchange. Instead, theyre sold in the over-the-counter market.</p> <p>Why are micro-caps interesting? Over the past 70 years, theyve outperformed larger companies by a wide margin. Of the stocks on the New York Stock Exchange, the tenth encompassing the smallest companies returned 13.8 percent annually, according to Ibbotson Associated. Meanwhile, the tenth representing the largest stocks produced 9.7 percent.</p> <p>Despite that record, few Wall Street analysts bother with micro-caps because theyre too small for institutions to trade effectively. That means opportunities exist for you to find gems in one of the few investment fields that hasnt yet been picked over by hordes of professionals.</p> <p>While they come with plenty of risk, small companies can achieve huge returns when they thrive. Many of todays biggest successes, including McDonalds and Microsoft, started as micro-caps.</p> <p>Do-it-yourself investors who want to search for micro-caps can get help from The Value Line Investment Survey Expanded Edition, which provides information on 1,800 smaller companies, including some with capitalizations of $75 million or less. An annual subscription costs $249. Or you can buy Morningstars U.S. Equities OnFloppy, which costs $145 and gives details on more than 7,800 companies, many of them micro-caps. After youve located a few promising targets, call the companies directly for more information. Dont be surprised if you end up talking to the president, who may own half the shares.</p> <p>A good approach is to focus on industries and companies youre familiar with. Many of my firms doctor clients have invested successfully in companies theyve learned about through their practices. For help sizing up stocks, you can try brokers. Regional brokerages sometimes specialize in local firms. But beware of brokers whose main strength is marketing, not research. Blindly following hot tips is a sure recipe for disappointing results.</p> <p>If you hear about an "undiscovered" micro-cap stock with an appealing story, be skeptical. Study the company carefully, and limit your purchases to a very small fraction of your portfolio. Check the stocks recent performance. If the shares have skyrocketed, theyre no longer undiscovered and may not offer value.</p> <p>No matter how much research you do, purchasing micro-cap stocks can be as chancy as a spin of the roulette wheel. Small, specialized companies can never be as steady as diversified giants. In no time, you can lose all youve invested. Instead of trying to pick individual winners, therefore, most investors should stick with mutual funds. That way, youll spread you risk and have a pro researching selections. I particularly like Royce Micro-Cap Trust, managed by Charles M. Royce, the dean of small-stock investing. Chuck seeks a cross section of companies selling at a discount. His mutual fund is closed-end, which means it sells a fixed number of shares that trade on NASDAQ. The shares currently sell at a 12 percent discount to the value of the portfolio assets. So you get a discount on top of a discount. However, if you prefer a conventional mutual fund, you can buy Royce Micro-Cap Fund, which also buys low-priced stocks.</p> <p>Berwyn Fund, a conventional fund, also buys very small companies selling at low prices. Taking only mild risks, the fund has nearly matched the S&P 500s performance over the past five years.</p> <p>DFA U.S. 9-10 Small Company Portfolio has done even better, outperforming the S&P 500 by more than 2 percentage points annually over the past five years. DFA holds a cross section of stocks resembling the overall micro-cap market. The fund isnt sold to the general public. You must buy shares through an investment adviser who has an account at DFA.</p> <p>You can get aggressive micro-cap funds that specialize in high-priced glamour stocks. But such funds can drop sharply in a bear market. So I prefer a more cautious index or value fund.</p> <p>Because micro-caps can be risky, you shouldnt invest more than 10 percent of your assets in them. As Ive said, mutual funds provide your best protection against the huge losses these small stocks can sometimes suffer. Bur if youve got a few extra dollars and are in a mood to take a chance, buy a couple of individual micros. Who knows? You may discover gold. Or better yet  platinum. </td> </tr> </table> </div><div align="left"><table border="0" cellpadding="0" cellspacing="0" width="480"> <tr> <td width="100%" align="center"><font face="Times New Roman" size="4">L.J. Altfest & Co., Inc.</font><font face="Times New Roman" size="3"><br> </font><strong><font face="Times New Roman,Times,Times NewRoman" size="2" color="#000000">116 John Street, Suite 1120<br> New York, NY 10038</font></strong></td> </tr> <tr> <td width="50%" align="center"><p align="center"><font face="Times New Roman,Times,Times NewRoman" size="2" color="#000000"><strong>Toll-Free: 1-888-5ALTFEST(1-888-525-8337)</strong></font><br> <font face="Times New Roman" size="2">Phone: 212-968-0707         Fax: 212-968-9133<br> Email: <a href="altfest@altfest.com">altfest@altfest.com</a></font></td> </tr> <tr> <td width="50%" align="center"><font face="Times New Roman" size="2">     | <a href="f_whoweare.htm" target="_top">who we are</a>  | <a href="f_whatwedo.htm" target="_top">what we do</a> | <a href="f_contactus.htm" target="_top">contact us</a>  | <a href="f_ourviews.htm" target="_top">altfest views</a> | <a href="f_databank.htm" target="_top">databank</a> |<br> | <a href="f_news.htm" target="_top">news</a> <a href="f_links.htm" target="_top">| links</a> | <a href="index.htm" target="_top">home </a>|  <a href="f_quiz.htm" target="_top">quiz</a> |  <a href="f_check.htm" target="_top">check accoun</a>t | <a href="f_calc.htm" target="_top">calculato</a>r |</font></td> </tr> </table> </div><p><font face="Times New Roman" size="2">ŠL.J. 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