Small & Microcap stocks should be desserts!

Investing in small cap & micro-cap stocks can be rewarding but the problem comes during a crisis. While it is easier to exit from large-caps or other quality stocks, the door is too narrow for small-cap & especially for micro-cap stocks. Just like continuous buying in these stocks can help prop NAVs of these funds, panic selling can result in the sharp underperformance of these funds during a black swan event. Liquidity is also poor in these stocks & in the event of ‘Only Sellers’, there is possibility of stocks not selling and capital is eroded on account of being stuck with the stock. However, there is no denying the fact that small and microcap funds give better returns. But these funds can be taken as desserts and not as your main course.