If you have a high tolerance for risk, then I feel it would be well worth gaining some exposure to the small cap side of the market.
Why invest in small cap shares?
This is because if you can find a future blue chip when it is still only a small cap, you could be rewarded very handsomely.
A prime example of this is private hospital operator Ramsay Health Care Limited (ASX: RHC).
Over the last couple of decades, Ramsay has gone from being just a small healthcare company to a global industry juggernaut providing healthcare services from 480 facilities across 11 countries.
This has led to the company’s shares rising from 80 cents in 2000 to $62.30 this month.
Which means the lucky investors that bought shares in 2020 and held onto them have generated incredible capital returns and dividends.
But which small caps should you look at today?
Firstly, it is important to remember for that every Ramsay, there are many others that fail to live up to their potential. So investors must choose their investments wisely at this side of the market.
To do this, I believe the best thing for investors to do is to look for small cap shares with strong business models, large addressable markets, and clear growth plans.
Based on this, there are a few small cap shares on the Australian share market that tick a lot of boxes for me.
These include cloud-based human resources and payroll software company ELMO Software Ltd (ASX: ELO), enterprise mobility software provider Bigtincan Holdings Ltd (ASX: BTH), and infant formula and baby food company Bubs Australia Ltd (ASX: BUB).
I believe that all three have massive potential and are capable of delivering rapid earnings growth over the next decade. But whether they have as much success as Ramsay, only time will tell.
These 3 stocks could be the next big movers in 2020
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended BIGTINCAN FPO. The Motley Fool Australia has recommended BUBS AUST FPO, Elmo Software, and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.