We’ve found that most investors can accurately identify large cap stocks. These are the names that get featured in the financial news because they’re members of the S&P 500. However, we’ve seen some confusion when it comes to small cap and mid cap stocks. That’s why Tom and Brendan decided to define small cap and mid cap stocks during this week’s Mullooly Asset Management podcast.
The first thing that people need to know is how to calculate a stock’s market capitalization. This is done by taking the stock’s price and multiplying it by the number of outstanding shares.
A lot of investors assume that small cap stocks must be…small, like really small. However, we bet they’d be surprised to find that a small cap stock actually has a market capitalization between $250 million and $2 billion. These might not be household names, but they’re significant companies. Tom and Brendan give a few examples of small cap stocks that listeners may recognize. The yardstick for small caps is the S&P Small Cap 600 index.
After learning that small caps aren’t so diminutive, people may expect to find that mid caps aren’t really average or mid-sized either. Well, they’d be correct in that assumption. These companies have a market capitalization between $2 billion and $10 billion. These are sizable companies. The yardstick for mid caps is the S&P Mid Cap 400. Tom and Brendan give some notable examples from this index as well.
Hopefully this podcast helps to clear up any investor confusion regarding small, mid, and large cap stocks. Make sure to listen to this week’s podcast to hear some examples from Tom and Brendan!
You might also find this educational post on market capitalization to be helpful: http://www.investopedia.com/articles/analyst/010502.asp