People choose certain stocks for many different reasons – business location; sector strength; product innovation – but some investors choose what to buy based on company size, or market capitalization [believing that size does matter. Yes,] understanding the difference between small-cap, medium-cap and large-cap companies is the first step to making the right choice. [Let me explain.] Words: 600
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Bryan Borzykowski (www.canadianliving.com).
There are three categories of market capitalization, or “market cap,” and all have different characteristics. Even if size doesn’t matter to you, it’s important to know how a small company versus a big one will affect your portfolio. Here’s a market cap primer. [Check out https://goo.gl/T2fnWj – Register for chance to win an iPad Pro!]
What is market capitalization?
A company’s “market cap” is the market value of its outstanding shares (those held by investors). To figure this out, just multiply the stock price with the number of shares outstanding. Apple, for example, has 929 million shares outstanding. Multiply that with its stock price — $397 at the time of writing — and you get a market cap of about $369 billion. The market cap is the main way investors measure the size of a company.
Leaning on Large-caps
Large-cap stocks — usually, companies with a market cap of $5 billion or more — are, generally, the safest investments. These are major global conglomerates. They do business in multiple countries and have built up a stable base of customers.
Maintaining with Medium-caps
If you want a combination of growth and safety, consider medium-caps. These companies have a market cap of between $1 billion and $5 billion and they usually have some characteristics of both small-cap and large-cap companies. If you only care about growth, you’ll likely want smaller companies; if you want to play it safe, then buy larger businesses. If you’re willing to take on some risk, but don’t want the potential of losing everything, then pick up some medium-cap stocks.
Sizzling with Small-caps
Small-caps are companies with a market cap of between $250 million and $1 billion. These are small businesses — often start-ups or young operations — with a ton of growth potential. In fact, that’s the main reason people invest in the small-cap space – they want their money to grow significantly. If it all works out, returns could be huge.
Buying a small, unknown tech business that either creates a hot product or gets bought by another company such as Google could result in serious returns but the opposite can happen, too — and often it does. Since these companies are so new, they can go bust. It is why during a recession, the small-cap space does much worse than large-caps. People get scared so they dump their risky companies and buy big ones. When the economy is strong, small-caps usually outperform large-caps, because investors are willing to take on more risk. Only buy small-caps if you have a high risk tolerance.
Micro- and Mega-caps
There are other market cap classifications — micro-cap for the really small companies and mega-cap for the huge ones — but most businesses fall into [the above] 3 baskets.
The size of the company you will want to buy should depend on your risk tolerance and on how much you want your money to grow. Some people invest across all sizes for balance — the stable businesses protect capital, while the small ones grow it.
Thanks for reading! Visit our Facebook page (here) and “Like” any article so you can “Follow the munKNEE” and get future articles automatically delivered to your feed.
Win An iPad Pro!
TalkMarkets.com is so convinced you’ll love their website they are raffling off an iPad Pro to those who registers here by June 30, 2017. For more information please read the contest Terms and Conditions.
975 authors contribute to TalkMarkets.com so check it out, register here and then program the site to provide you with exactly what you want by author & topic. Check out my profile & articles on TM here.
One of the hardest things for individual investors to do is to know when to sell a stock. Many times, you might sell simply because a stock has gone up and you’ve made some money. More often than not, though, this is not a great reason to sell [because, as mentioned in the title of this article,] you will never – ever – have a 10-bagger if you sell a stock after a 2-bagger. That being said, what things should one consider before selling? Words: 912
Rules may be meant to be broken, but with investing ignoring the rules can break you – especially now. Investment rules are tailor-made for tough times, allowing you to stick to a plan just when you need it most. Indeed, a rulebook is important in any market climate, but it tends to get tossed when stocks are soaring. That’s why sage investors warn people not to confuse a bull market with brains. Here are 10 rules to survive this stormy stock market. Words: 769
I’m not going to candy coat it for you: making serious money in the stock market is a ton of hard work. It takes patience, savvy, and a certain level of market smarts – and the cold, hard truth is that if you don’t have them, the big boys will drain your portfolio dry. Unfortunately, those are the three areas that most retail investors need to work on the most. Otherwise, they will simply end up in a cat-and-mouse game where they are the mice. Don’t fool yourself for one second into believing that your “due diligence” can be done by watching a show or two on CNBC. It just doesn’t work that way but if there is one voice from the markets that should grab your attention every time you hear it, it belongs to Dennis Gartman, founder and author of The Gartman Letter. He’s sort of a guru’s guru. [Here is] a glimpse into how he views and trades the markets. Words: 1061
VIX is the ticker symbol for the volatility index that the Chicago Board Options Exchange created to calculate the implied volatility of options on the S&P 500 index for the next 30 calendar days. The formal name of the VIX is the CBOE Volatility Index [and informally as the investor fear guage]. Below is some introductory material on the VIX offered up in a question and answer format: Words: 915