The February 2013 issue of the SmallCap Informer is now available online for subscribers. Print subscribers should expect to receive their issues by U.S. Mail within four to five business days.

2012 turned out to be a great year for small-cap stock investors.

In December, the Russell 2000 Small-cap Stock index turned in jaw-dropping 3.56%, giving small-cap stocks a 16.35% return for the entire year of 2012. In contrast, the Standard & Poor’s 500 Index gained just 0.71% in December 2012, but was still able to end the year up 13.41%. While that’s an exceptional year for the overall market, small-cap stocks provided an even better rate of return in 2012, emphasizing once again that stock investors should probably actively consider smaller company stocks for their portfolios if they truly wish to maximize the returns they are likely to earn.

When investing in small-cap stocks, one of the key disciplines for success is performing “due diligence,” or making sure you know as possible about a company, its products, its management and its prospects before you make a move.

Here are the keys for carrying out due diligence on small company stocks you’re considering making part of your long-term investment portfolio.

An IAS subscriber recently wrote to ask, “Should I sell a stock in your portfolio when it is no longer below your suggested buy price? Or should I wait till you discontinue coverage on it?”

“The Great Rotation” refers to the eventual shift of investor money out of bonds and into stocks. The concept is that eventually investors’ preference for safety at any cost will give way to greater confidence in the future and a desire to start making money again. Many subscribers might find it hard to believe that there are many Americans willing to accept a return of -1.25% per year after five years by putting their money into a five-year CD paying 1%. The negative return comes from taxes on the paltry interest and an estimated inflation rate of 2% per year. Even worse, the inflation-adjusted, after-tax return on ten-year Treasuries was -1% last summer. The demand for safety was that high.

The February 2013 issue of the Investor Advisory Service is now available online for subscribers. To access the issue, please visit the Subscribers area of www.investoradvisoryservice.com. Print subscribers should expect to receive their issues by U.S. Mail within five business days.

As a company succeeds and grows, it gets harder and harder for it to maintain the high growth rates it may have enjoyed when it was a much smaller business. For this reason, it is very important for investors to understand where a company stands in its life cycle to gauge its past results and likely future growth.

Subscribers in the Southeast U.S. are invited to join SmallCap Informer Editor-in-Chief Doug Gerlach at the World Money Show in Orlando, Fla., January 30-February 2, 2013.

Investor Advisory Service Editor-in-Chief Douglas Gerlach will be presenting at the World Money Show in Orlando, FL, January 30-February 2, 2013. We'd love to see you there!

For the fourth year in a row, the Investor Advisory Service has been named to the Hulbert Financial Digest's prestigious Investment Newsletter Honor Roll.

In response to a subscriber question, Editor-in-Chief Doug Gerlach describes another tool that can be used to find small-cap stocks of interest.