Market Capitalization

UNDERSTANDING THE IMPORTANCE OF MARKET CAPITALIZATION
BY: WILLIAM HOLLER

For many novice investors the jargon of the investment world can become overwhelming. Our goal at “Drop in the Bucket” is to provide useful insight to our readers, sharing our experiences and knowledge in such a way that our readers can use the information we provide to enrich their understanding of the market so that they may grow as a person and an investor.
Within the investment world, an undying principal serves as the foundation for any legitimate investment strategy. This not so secret principal is the lifelong search for knowledge. “Knowing is not enough but knowing what you know and don’t know.” (Patton On Leadership, Alan Axelrod pg. 98) With this end in mind, I will work to share with our readers this treasured nugget of knowledge as I continue to travel through this wonderful world of investing.
As our trek, begins I will attempt to provide a basic understanding of Market Capitalization and its importance in the decision making process of finding your next winner. At its core, market capitalization is defined as “total market value of company, calculated by multiplying shares outstanding by the stock price.” (investors.com, financial dictionary, 2010) Based on this information a company’s value can be established at any given time. In theory if you were going to purchase a company that is publically traded, the market cap would be the monetary amount that would be paid for the company. When you look at investing in the same way, it can be said that I am purchasing a portion of the company when I buy a stock for that particular organization Therefore, the higher the market cap the stronger a company is in the open market.
There are many other factors the go into choosing the right stock understanding market capitalization gives you one more tool to add to your knowledge base, “No decision is difficult to make if you have all the facts.” (Patton On Leadership, Alan Axelrod pg. 89) Understanding Market Cap is one more drop in your bucket of knowledge. May your fortunes be great and your knowledge continue to grow and provide you shelter from the economic storms we all face in the past, past present, and future.