It’s not the big kids who always win on the field and the same holds true for the plays investors make in the stock market.
While market cap is a measure of how much a company is worth, it is not a measure of how well the stock will perform. Sometimes the small guys produce greater returns for investors.
When explaining a company’s size, you’ll hear the term market capitalization or market cap. It’s basically how much money the company is worth. This is determined by multiplying the stock price by how many shares (or individual pieces of the company) are available. When building a portfolio, investors often look to different size companies to help diversify their holdings. They will often invest in not only what we call large-cap stocks, but also mid-cap and small-cap; based on the size of the market cap.
To put things in perspective, according to Investopedia.com, large cap companies are those with market caps of $10 billion plus, mid cap are $2 billion – $10 billion and small cap are those with less than $2 billion.
If your teen is ready to take on the world of investing, he or she should explore companies they are most familiar with. Teens are probably among the pickiest consumers. They know what’s in and what’s out. Let them use that to their advantage in determining where they should put their money. In fact, famed Wall Street tycoon, Warren Buffett, tells investors to simply buy what they know. (On a side note, Buffett made his first investment at age eleven — so in other words, it’s never too early to start!)
When encouraging your child to invest, definitely teach them to research names they know. However, explain that while they may be tempted to immediately turn to some of the biggies on Wall Street, such as the Apples and Googles of the world, they shouldn’t be afraid to look into smaller companies they admire.
If they see something special in a brand, they may very well be onto something which could turn out to be a solid investment.
> Post provided by @ErikaVujnovich
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