A simple analogy for small cap stocks are like speedboat & big cap stocks are like big ship. Suppose both have a destination to reach hence speedboat is small and fast & no doubt, it should reach the destination earlier. As for the big ship is big but slow but eventually it’s still able to reach the destination.
However, along the way, should there be any big wave or storm, the speedboat will be in danger and likely it’s not able to withstand it. As compare with the big ship despite it takes longer to reach the destination but nevertheless, along the journey it’s able to withstand the big wave and storm.
Translate it back to stocks, small cap stock is cheap in price and should it rise in price, the capital gain is huge. Big cap stock is expensive and the potential capital gain is limited.
Nonetheless, most investors are ignorant & think by paying a lower price for small cap stocks, get the huge dividend pay-check, are the right thing to do.
Obviously, they have to ask themselves, are the dividend sustainable, if it’s not sustainable, will there be any dividend cut or no dividend payout, should the companies earning increase, are the companies able to increase the dividend or payout special dividend to the investors, etc.
Therefore, the key focus is to purchase big cap dividend stocks & hold them as core stocks in the portfolio.