Market Capitalization

[cpatte7372]

Hello,

I wonder if someone would please tell me the advantages/disadvantages of investing in Small Cap and Large Capitalization stocks?

Thank you.

Carlton

[DuaneG]

Hi Carlton,

One of the biggest advantages to small cap investing is that most institutions, specifically mutual funds are usually prevented from taking significant positions into these stocks. With this said, mutual funds are not likely to add these to their holdings as they will often spike their previously attractive pricing. You should probably be aware that small cap stocks can be extremely volatile. Depending on your risk tolerance, they may or may not be right for your style of trading.

Large caps on the other hand are structured on the inverse. Institutions often hold large amounts of large cap stocks which offers more stability. With stability comes small percentage price movements which, again, may or may not fit with your overall trading goals.

In a nutshell,

Small Caps:

-Few institutional holdings
-Wide price & % swings
-Can be somewhat unstable
-Usually requires more research to scrub balance sheets and determine fundamental data

Large Caps:

-Large institutional holdings
-Smaller price & % swings
-More stability with institutional backing

[cpatte7372]

Duane,

Thats brilliant mate. Excellent explanation.

Cheers

Carlton