If you remember market capitalization is how we measure the total worth of a company. It is the way you categorize companies by size.
You calculate a companys market capitalization by multiplying the price per share times the number of outstanding shares. A simple way of thinking of it is how much you would pay to buy every share of stock on the market.
By SizeA general break down by size of companies is:
- Small Cap under $1 billion
- Mid Cap $1 - $10 billion
- Large Cap $10 billion plus
Russell Investments, the company that generates a number of fine market indexes, has an index that tracks these giants. Its called the Russell Top 50 Index.
The 50 companies in this index represent about 40% of all domestic equity in the U.S. markets. Thats how big they are.
You would recognize all of these companies: Microsoft, Bank of America, Exxon, Wells Fargo, Dell, and so on.
Should you own any of these giants? Certainly, a diversified portfolio should include large cap stocks, but what about these 800-pound gorillas, as one news article called them?
InflationIf you are concerned about inflation and rising interest rates or a slowing economy, industry leading mega-cap stocks with solid balance sheets (lots of cash, manageable debt) are a relative safe place to weather the storm.
They are as a group unlikely to experience the wild swings that smaller companies may give you. If the water is choppy, do you want to be in a small boat or a large boat?