So when we decide what constitutes the best small cap stock, we will want to concentrate on a few areas that have traditionally performed well.

1) Is the company poised for explosive growth? Some companies are already doing well, and just need an expansion to increase their market share and sales. These types of companies tend to benefit greatly from exposure to the public markets. They put the new funds they receive to good use and handle their expansions wisely.

2) Is the company building a brand? If they are, this could be a case of discovering the next big stock before it becomes too famous (and expensive).

3) Is the company profitable? Sure, revenue growth is great. But stock appreciation tends to come from increasing earnings. The more profit the company makes, the better.

4) Does the company have the management expertise necessary to grow the company? Sometimes small companies perform well when they’re tiny, but come apart at the seams due to growth. Experience management can be the difference between winning or losing.

5) Does the company have a sustainable business model? Sometimes a company grows fast, but the fad passes quickly. Make sure the company actually produces products that can stay in demand.

If a company can pass all five of these criteria, you might be onto something. Small caps do represent one of the best opportunities you can find for high-returning investments.

When you begin trading, you’ll need to pay particular attention to your margin requirement, which is $2,000 or 50% of the trade, as set by Reg. T of the Federal Reserve. If you go below this 50% margin requirement, it can trigger a margin call, which could result in your account being liquidated.

Margin accounts are charged interest by the broker, so if you plan on holding a stock for more than a few days on margin, you’ll need to keep this in mind. Generally, margin should only be used for very short term trades.

In future articles we’ll take a look at the three types of margin calls you might get, and how you can avoid a disaster using margin.

The San Francisco-based mortgage investor, whose stock slid from more than $15 at the height of the housing boom to as low as 36 cents this year, in August reached a deal with financier Arco Capital Ltd. Arco Capital agreed to lend Luminent $60 million and buy $65 million of the company’s loans in exchange for the right to buy a majority stake in the company at a steep discount.

With that money, Luminent said Monday it repaid all its debt under “warehouse” credit lines, or lines investment banks extend lenders to issue home loans slated to be repackaged into bonds.

Although the company is in no imminent danger of folding, it’s hard to imagine any “go go” days coming for them soon. But bottom fishing value investors have to be interested in this one.

The basic rules of money management are concerned with protecting capital

In essence, the main rule of money management you need to learn is to “not blow your wad” on one trade. You have to set up rules that you stick to religiously, in order to make sure any downside you experience is not fatal to your entire investment portfolio. You also use money management to ensure you get the most out of any winner’s you hit, and dump the losers fast enough so that they don’t wipe you.

Basic rules to follow

• Let your winners run. Don’t sell a winner until you maximize the profit you can get from the trade. Use a trailing stop-loss order to be sure.
• Cut your losses quickly at a pre-determined rate. Say 10% is the maximum you’re willing to lose on one trade. Set a stop-loss at 10% and you’ll be automatically closed out of the position if the stock goes against you.
• Decide how many trades you can lose on and still be profitable
• Set your rules and follow them. Only you can ensure that you live by your ruleset. If you careless ignore you own rules, your system of money management will fail.
• Always set a profit goal when you make a trade. If you honestly can’t make enough money on a trade, then don’t do it.
• Don’t ignore transaction costs. Transaction costs can end up being huge when it comes to investing.

Even if you lose on some trades, proper money management can ensure you are up overall

Making money over the long haul is what all investors are attempting to do. Those with good money management skills are extremely likely to succeed. Those who can’t get their minds around the idea will probably suffer. If you want to be a top-notch investor, bone up on money management today.

What money management practices do you use?

One problem folks: this is investing, and not Las Vegas. IMHO, you’ll have a much better time in Vegas with an attitude like that, then in the coldly harsh waters of the stock market, where cold-blooded sharks swim and they feast on the blood of newbies. To tell an internet forum of stock pumpers that you have “$10,000 to invest and no idea of how to do it” is the equivalent of a fine woman wearing a short skirt to a pervert convention. I.E., it’s not the best idea.

To further let your new internet friends know that not only are you ignorant, but that you’re also in a hurry, is the equivalent of dropping the bar of soap in the pervert prison shower. I think you’re getting the drift now, but if I need to, I’ll come up with even more of these analogies. But the main point is simple: take your time. There’s no hurry to invest money. If you’ve never invested up until this point in life, it’s doubtful you’ll be in a major hurry to fully commit to an investment in the next 24 hours. Take a deep breath and relax.

The train really isn’t leaving the station most of the time, so you’ve got plenty of time left to invest. Do your homework first so that you have a good idea of the jargon used by others. And make sure you ask your brokerage all the pertinent questions, because it’s their rules you’ll have to follow. And keep in mind that advice from the internet is always worth exactly what you paid for it, or usually even less. Think for yourself, never let’em see you sweat, and keep on zigging when everyone else is zagging and you should do dandy.

What type of style can you develop? There’s tons of “schools of thought” when it comes to investing in the stock market, and none of them are guaranteed for success. You should probably study several different systems first, and then decide on what you want to do. Don’t be afraid to be flexible, you can pick and choose whatever you want from any system and keep the best for yourself.

A style of trading won’t mean you become an instant hero on Wall Street, but it definitely can help you steer the course on rugged days. If you have a plan and stick to your plan, you can cut your losses, to a degree.

Sure, it’s great to get opinions from the masses. It always pay to get a genuine feel for the sentiments of folks towards companies or stock prices, but if you try to blindly follow what someone else does, you’ll end up in a world of hurt. Some people online have their own agendas, and that agenda might be the counter opposite of what you need. That means you need to take care of Number One first and foremost, and make sure that any deal you plan on entering into, you understand fully.

Be aware of the possibility that info you’re getting is not accurate, and don’t forget to investigate it on your own. Stocks are complicated in one way, but easy in another. The companies you buy stock in are real. You can always try purchasing the companies products or calling their investor relations department. They make money by talking to the public, so always give them a call if you’re suspicious of any info.

Don’t argue with the market. Instead, set stops and let nature take its’ course. If you’re stopped out at 8%, it means you were wrong about the trade, but you were right about protecting your downside. Your Ego should be content to know that you were smart enough to use a stop in the first place. If you don’t have an exit plan on every trade, you might be consumed by an internal dialogue that threatens to undermine all of your decisions.

How can you keep you Ego in check when trading? Plan your trades and trade your plan. If you know what your entry and exit points are, you’re likely to stick to your knitting and finish our your trade without a nasty incident. No one’s telling you to have no Ego at all, but just make sure to put the money first, and your own feelings second. Rule with the head and not the heart.

If you’re very lucky, you just may find the next 10,000% gainer, before the company makes its’ meteoric rise.

Companies that might be of interest due to high sales and earnings growth:

• Chico’s – merely the greatest retailer going – and a record 8 appearances on the list – chec out this company if you have any sense, because they just had a rare correction
• Coldwater Creek – another up and coming high end retailer
• UnderArmour – expensive undershirts keep the coming flying high since its’ IPO
• Build-a-Bear – a funny concept, but one that just rakes in the cash

Burgeoning profits normally mean higher share prices for investors, so any of these stocks you can pick up at bargain prices is well worth a look. Make sure to do your due dilligence, but many fast growing companies have a way of really rewarding patient investors. In fact, a company that you hold from the time their a micro-cap to the time their a large-cap might just make you wealthy. Look for the acorns that grow to become mighty trees.

You don’t want to fight the trend, and up swimming against the stream. The best way to invest is with a smooth tailwind pushing you gradually up. Sure, an explosive move upward can be great when it happens, but chances are you’re looking at smaller returns when the overall stock market starts lurching sidewards.

Where is all the investing profit? Smart money moves faster than ever before. The stock market competes with many, many other financial instruments, which are getting more popular all the time. You can invest your money more easily these days into a dizzying array of products, so you don’t NEED to invest in stocks. Right now people are:

• 1) Investing in real estate in record proportions
• 2) Are more involved in commodities than ever before
• 3) Put money into hedge funds which do not rely on stocks for big returns

Any or all of these may be options for you, depending on your investment goals. Don’t be afraid to examine all alternatives before committing your money to one class of investment. There’s no need to use tunnel vision to achieve high returns. Cash is looking like a great place to be right now for the majority of patient investors.