Tips for Investing in Small-Cap Stocks

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

NEW YORK (TheStreet) - Looking at my real time trading screen right now, the four stocks I'm evaluating are up 6.3 percent, 5.95 percent, 5.48 percent, and 0.38 percent.

Each stock has swung 10 percent or more over the last three trading days, and two have swung more than 20 percent.

The action in these four stocks is typical of small caps during earnings season. In fact, two of these companies report this afternoon, one reported Friday, and the other last Wednesday.

Let's put this price action into perspective: a 10 percent gain in the S&P 500 on an annual basis is considered a pretty good year. That broad market proxy has actually averaged less than 10 percent a year since inception in 1979. Yet these stocks are moving 10 percent or more in just a couple of trading days.

That's why investors are attracted to small-cap stocks: The returns on these tiny companies just can't be beat . But the risks are a lot higher, especially during earnings season when small caps can act like a squirrel fleeing a Maine coon cat.

Some advisors will say to stay away from the market during earnings season. They'll say that the risks are too high to place any trades.

These advisors are doing you a disservice. They are trying to cover their behinds. Like most analysts, speculation isn't their strong suit. They don't want to take the risk of saying a stock is likely to report expectation-beating results, only to be wrong.

Unfortunately for them, and for you if you listen to their garbage, this means they'll never be right.

You can't make much money if you never take any risk. You won't ever smile inwardly as the stock you bought before earnings soars 10 percent, 20 percent, or even more. But you won't ever have your jaw hit your keyboard when your company reports dissapointing news, and the stock plummets 15 percent.

If you can't handle these emotions, stop reading this article now. The rest of today's message isn't for you. And there's nothing wrong with that. Everyone has a different risk tolerance, and handles making, and losing, money in a different way.