Small Cap (2) worddd.docx - Small Cap Stocl<s vs Large Cap Stocks What's the Difference Small Cap Stocks vs Large Cap Stocks An Overview Historically

Small Cap (2) worddd.docx - Small Cap Stocl<s vs Large Cap...

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Small Cap Stocl<s vs. Large Cap Stocks: What's the Difference? Small Cap Stocks vs. Large Cap Stocks: An Overview Historically, market capitalization, defined as the value of all outstanding shares of a corporation, has an inverse or opposite relationship to both risk and return. On average, larue-cap corporations —those with market capitalizations of US$ 10 billion and greater—tend to grow more slowly than mid-cap companies. Mid-cap companies are those with capitalization between $2 and $10 billion, while small-cap corporations have between $300 million and $2 billion. These definitions of large cap and small cap differ slightly between the brokerage houses, and the dividing lines have shifted over time. The differing definitions are relatively superficial and only matter for the companies that are on the borderlines. Small Cap Stocks Small cap stocks have fewer publicly-traded shares than mid or large-cap companies. As mentioned earlier, these businesses have between $300 million and $2 billion of the total dollar value of all outstanding shares—those held by investors, institutional investors, and company insiders. Smaller businesses will float smaller offerings of shares. So, these stocks may be thinly traded and it may take longer for their transactions to finalize. However, the small-cap marketplace is one place where the individual investor has an advantage over institutional investors. Since they buy large blocks of stocks, institutional investors do not involve themselves as frequently in small-cap offerings. If they did, they would find themselves owning controlling portions of these smaller businesses. Lack of liquidity remains a struggle for small-cap stocks , especially for investors who take pride in building their portfolios on diversification. This difference has two effects: l. Small cap investors may struggle to offload shares. When there is less liquidity in a marketplace, an investor may find it takes longer to buy or sell a particular holding with little daily trading volume. 2. The managers of small-cap funds close their funds to new investors at lower assets under management (AUM) thresholds. Volatility struck small caps in late 2018, although this is not a new phenomenon. Small cap stocks did well in the first three quarters of 2018, entering September of that year with the Russell 2000 index up 13.4% compared to 8.5% for the S&P 500. Between 1980 and 2015, small caps averaged 1 1.24% annual growth in the face of rising interest rates, easily outpacing midcaps at 8.59% and large caps at 8.00%. In the first weeks of 2019, the Russell 2000 led the market by 7% to the S&P 3.7%.
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