Since large cap stocks are very efficient and I am an individual without that many resources it probably wouldn't be a good idea to invest in them. But what about small caps? Do they present enough opportunity for an individual to make good returns or would I still be at too much of a disadvantage?
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Why not hold a small cap index
I am a student with some free time and extra money and want to practice stock picking
I would allocate 80-90% of your money to a somewhat diversified portfolio of large-cap index funds (S&P500, NASDAQ, TSX60, FTSE100) with maybe a skew towards US funds and using the remaining money to invest in small-cap stocks that you pick yourself
thanks for the suggestion
Echoing this
At your stage forget about the indices and diversification, instead hold a concentrated portfolio of 3-5 good stocks. Research them well, as a student you won't reasonably have time to stay across any more than this. Consider any money lost as the price of learning. Agree you're probably better off looking at the small cap end of town, but equally if not more important is picking the types of companies and investment time-horizon that reduce your informational disadvantage.
Avoid complex companies, it would be difficult to fully understand the competitive position of an enterprise software company from your position, so start elsewhere. Use a 2-3 year plus investment horizon, forget about trying to pick quarterly earnings numbers. Assuming you don't have access to Bloomberg at school, it will be helpful choosing companies that publish their quarterly earnings transcripts/audio on their IR site for everyone to access.
Start with companies that are conceptually easy to understand, like a Dollar General or small cap equivalent, or a Six Flags Entertainment, or a restaurant chain, or something like that.
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