Many people who regularly trade shares will not even consider the idea of trading large cap stocks. This is understandable to some extent because they have performed pretty badly in recent years, and it has been tough to make money.
However I think these traders should try and change their way of thinking because I have always found large cap stocks to be very profitable. There are a couple of ways you can make some excellent profits by trading these bigger companies.
The first is to take a long term approach and try and emulate the investing style of Warren Buffett, who is obviously one of the all time greats. He always tends to invest in large cap stocks that are market leaders in their industries, and he has made massive profits doing this over the years.
It is easy to see why he does so well. All of his investments tend to be in companies that have long records of consistent dividend and earnings growth. So as the years go by, the earnings and dividends of his companies go up, and this pushes the share price up as well. When you add in the fact that he reinvests most of the dividends he receives every year, he clearly makes some massive profits.
This sends out the message that you can still make huge returns by concentrating solely on large cap stocks. This is particularly true if you have enough patience to hold on to the stocks for long periods of time. In other words not being tempted to sell every time the market drops off.
One other way you can make money is to look for quick profits instead of long term profits. This means trying to bank a profit in just a few weeks or months, rather than holding on to stocks for many years.
This is surprisingly easy to do when the markets are volatile because you get some big market movements. When the wider stock market falls, it drags the share price of even the best companies lower, and therefore they will often become hugely undervalued as a result of these swings.
So if you can keep an eye on the fundamentals of a company, and use the charts to identify when quality stocks are approaching oversold levels, you can make excellent profits by taking long positions at opportune moments. You could also try buying the shares directly because it is quite possible to make 5 or 10 per cent buying these stocks at low levels and selling them a few months later.
It may also be an idea to open short positions when the markets are trading too high. At such times various large cap stocks will have moved well above their true market value. So it can be very profitable to open a short position and wait for the stock to fall to more realistic levels before you can then bank a profit. This is not always easy to do, but it is an option you have when markets are high.
The message I want to convey to you is that large cap stocks should not be ignored. You can easily make money investing in them for the long term or trading them on a short term basis. A lot of people flock to the small cap stocks, but I have always found that the large cap stocks are much easier to make consistent returns from.