Hey 5-Star Trader,
There are many ways to look at the market. You can compartmentalize it by breaking it down into sectors or compare the different indexes to judge its sentiment. But what if you want to compare the overall health and consistencies of one company to another? Knowing which sector they are in won’t help.
That’s why when I am comparing companies one of the things I do is consider whether they are a large, mid, or small cap.
But what is a large, mid, or small cap?
When classifying a company into one of these three buckets we have to consider its market capitalization:
- Large cap companies are considered to have a market capitalization of $10 billion or higher.
- Mid cap companies are considered to have a market capitalization between $2 billion – $10 billion.
- Small cap companies are considered to have a market capitalization of $300 million – $2 billion.
Why do I care about a company’s market value?
When looking to add to my long-term portfolio I always want to consider the risks involved and a good way to determine this is through their market value.
Large cap stocks are generally very expensive, but because their market value is so high, they tend to be stable picks. They’re usually leaders in their field and are well known so the risk is low.
Small to mid caps are companies that are not as well established as large caps. This makes them a riskier pick, but it provides investors a unique opportunity to get in on companies when they are in their core growth stages (before their potential takes off). That coupled with the cheaper price tag makes them an absolutely essential part of my portfolio.
Want to learn more about what’s in my portfolio? Catch the replay of my free webinar. There I will show you how I build my portfolio and beat the S&P 500.