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 company’s 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 Size
A 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. It’s called the Russell Top 50 Index.
The 50 companies in this index represent about 40% of all domestic equity in the U.S. markets. That’s 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?
Inflation
If 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?
