By MIND YOUR BUSINESS BY KIRK G. AUGER
When considering individual stocks for your portfolio, a company’s size is one of the key ways of categorizing potential investments.
Generally, companies issuing common stock fall into one of three size groups: large-cap, mid-cap or small-cap, based on the total stock market value of the company that underlies the stock. This is commonly referred to as “market capitalization.”
Large-cap stocks usually refer to companies with total market capitalization of more than $5 billion. Large-cap companies tend to be well-established, well-known household names and are likely to be stocks listed on the Dow Jones Industrial Average and the S&P 500 stock indexes.
Mid-cap stocks typically refer to companies with market capitalizations of between $1.5 billion and $5 billion. Mid-cap companies tend to be those that are beginning to mature but are still in the growing stages.
The small-cap designation is usually assigned to companies with market capitalizations of less than $1.5 billion. Small-cap stocks usually represent new businesses and young companies that are often still in their start-up phases.
Investments in the common stock of small and mid-sized companies may provide the potential for greater growth opportunities but generally involve greater risks than those typically associated with the common stock of larger companies, because smaller companies may have limited product lines, markets or financial resources, among other things. Of course, those categories may overlap and the designations should be used only as general guidelines on the size and status of companies that have issued stock. Your financial advisor can help you determine which combination of stocks is suitable for you, based on your particular circumstances, individual financial situation and investment goals.
Originally published in the Santa Monica Daily Press print edition on April 13, 2006. Read the original PDF.