Small Cap or Large Cap ?

In this lesson we will have a look at market capitalization and its merits and demerits.

Small Cap : These are companies that have small market capitalization. The merits of investing in small cap is, in the long run if the company moves in the right direction, then, eventually the company might turn into a large cap. If the aforementioned happens, then the investor can make some good profit. Another merit of small caps are, the stock prices are usually less when compared to large cap companies, therefore an investor can buy good number of shares.

Small caps are usually profitable in the long run. If the investor is looking for growth of a company and if she or he chooses the correct company while investing, then it turns out to be a profitable trade.

The demerits of small cap companies are, lack of dividends. When the companies plough back profits to make the company grow and diversify, the profits usually do not reach the investor in the form of dividends. Another demerit is competition from peers. Extreme competition can wipe out a company. Companies that aren’t famous do not make it to the headlines of business news, which implies tracking such companies would be a herculean task.

Large Cap : These are companies that have large market capitalization. The good thing about large cap companies is, they would have already survived the critical stages that pose threat, (when they were small or mid cap companies), this implies that they would be able to handle the future hurdles. An important thing to note here is “Some of the large cap companies too were once a small cap companies.” Other merits of large cap companies are, they can purchase the competitor, since they have huge funds. They can invest in research and development. Most of the large caps pay dividends to the share holders. They often make news in the columns of business news, which implies that they do not disappear overnight and tracking the companies is quite easy.

The demerits of large cap companies are, the price of stocks are pretty expensive, therefore buying large volumes requires obese wallet. When the fundamentals of the company changes and when they make losses, large caps do not sound as fancy as they were mentioned in the previous paragraph.

Disclaimer : Trading stocks is subjected to market risks. Please read all the terms and conditions before investing. The motive of this lesson was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.

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