What does "market capitalization" mean, and is that an important factor in deciding whether to buy a stock?

Asked by Joseph

2 Answers

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Answered by Michael Hoffman, RFC, CLU, ChFCPRO+ in Grass Valley, CA
Market capitalization refers to the size and usually the maturity of the company. The market is generally divided into Large, Mid and Small cap sectors. The Large cap stocks tend to have more dividends and less focus on growth. The Small cap stocks tend to have no dividends with all the focus on growth. Mid caps have a blend.
Diversification between market sectors can provide a portfolio a more consistent return than attempting to choose the sector that is increasing in value.
92% of the return on your investment is a function of the asset class that you choose to invest in. | 10.30.13 @ 20:33
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Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC — Where does this, "92% of the return on your investment is a function of the asset class that you choose to invest in."? Actually, all of your ROI is a function of what you invest in-True, some asset classes return more than others. Digging deeper, the individual firms are where the ROI is and consistency keeps you from guessing which shuffle of asset classes is better. Maturity is not a function of market cap. True, many growth firms do increase there market cap as they expand. There are also many mature firms that contract due to things like over expansion, high debt, poor management, etc. This is why the definition of market cap uses the equation # of shares outstanding X per share price https://en.wikipedia.org/wiki/Market_capitalization | 03.31.16 @ 21:52
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$commenter.renderDisplayableName() — {comment} | 12.04.16 @ 12:32
Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hi Joseph,

In very simple terms, market cap is the current value of a firm.

Here is the equation:
Total # of shares outstanding X the current price/share = market cap

Yes, it will go up,down and sideways. The most important factor when buying a stock is to not lose money.

Here is a question for you:
What is the stocks Intrinsic value?
There are various methods to dive deeper into this. Keep in mind GIGO-Garbage In Garbage Out.

Send me a message do discuss further

It's not what you make, it's what you keep that determines your lifestyle.
| 03.17.16 @ 21:08
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$commenter.renderDisplayableName() — {comment} | 12.04.16 @ 12:32
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