These companies are expected to increase their earnings at a certain rate. When these expectations are not met, investors can punish the stocks inordinately even if earnings showed an absolute increase. By the same token, earnings that exceed projections can trigger sharp price gains. Above-average volatility also reflects the rapidly changing, highly competitive operating environments of many of these companies. Even experienced, skillful managements may blunder into unforeseen minefields.
Some companies recover, so the temporary setback represents an excellent buying opportunity.
However, the mortality rate among small, emerging growth companies is high. The short answer is anyone who is willing to incur risk for the opportunity to build capital and beat inflation over the long run. Objectives could include retirement, maintaining the purchasing power of a retirement nest egg, or saving for a child's education. The longer answer is that each investor should evaluate his or her overall financial picture, long-term objectives, and risk tolerance. Once the decision is made to put money in growth stocks, investors should diversify their holdings and stay abreast of each company's internal developments and external environment.