The Russell 2000 is a market-capitalization-weighted index of the 2,000 smallest stocks in the Russell 3000, an index of the 3,000 largest publicly-traded companies, based on market cap, in the U.S. stock market. The Russell 2000 is the best-known indicator of the daily performance of small companies in the market; it is not dominated by a single industry.

There are certain stocks called indexes, which are groups of stocks that are similar in some sort of way. The beauty of an index is that they are so big that you have a lot of liquidity even if you are a big investor. One of the largest indexes out there is called the Russell 2000.

People who are looking to invest in small cap companies are looking to get more activity in the market rather than by buying huge companies.

As a Rule #1 Investor we use the Russell 2000 all the time. It is a wonderful trade that we can do that allows us to generate cash flow off of doing a bull put spread or a spread trade.

The following video is part of our “Rule #1 Investing” series, in which founder, contributor and investor Phil Town discusses topics and principals from around the investment world.

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