The potential for strong gains with small-cap investing is mirrored by the enhanced risks investors must take into account. As we have explained elsewhere, one of the strength of small caps is the ability for a new contract, or another similar business win, to transform a company's fortunes overnight. But the opposite can also apply. Often smaller companies rely on a small set of customers and a limited number of key contracts, and losing such a deal can lay waste to forecasts in one fell swoop.
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