Small Cap Stocks – Defined
It seems logical to me to start off this small cap investing blog with an article about what a small cap stock is and isn’t. I’ve been investing/trading in the stock market for many, many years. Small caps have always been a favorite of mine. And for the individual investor (you), they offer a lot of potential.
Put Your Cap On
Terms like “small cap,” “micro cap,” and others are thrown around all the time. But what in the heck do they mean?
The “cap” part comes from capitalization. Specifically, the term has to do with a company’s total market capitalization.
Refresher: market capitalization is the number of shares outstanding multiplied by the stock price.
So small cap stocks are all tiny little companies right? Not so fast. The word is misleading, because small in the scope of the stock market isn’t as small as you’d think. These aren’t mom & pop stores.
Bottom line. A small cap stock is stock for company that has between $250 million and $2 billion in market capitalization. These stocks are traded on various exchanges, like the NYSE, NASDAQ and Amex.
I should point out that sometimes the definition of what a small cap stock is can change a little. For example, I told you that the smallest stocks in the field have about $250 million market capitalization. However, some will say that it should be a little higher. Honestly, it’s not that important, but I wanted to make you aware of this, so you don’t get confused later on.
At the end of the day
We’re going to focus on small cap stocks, because that’s where a lot of potential resides. I’ll be using the $250 million – $2 billion market cap range for this blog.
Just keep in mind that the word “small” doesn’t mean a company you can’t find or small opportunity. These are real companies with upside and a lot of profit potential.
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