When we buy a stock, first and foremost we are buying a stake in a business. Of course, there are many other factors that come into play when we buy or invest in a particular stock.
How well a business is growing, what sector it operates in and what the competitive outlook in its industry looks like are just some of the considerations.
Perhaps one of the biggest, in my opinion, that isn’t really thought about is the market capitalisation (also known as “market cap”) of the stock you’re buying.
But what is market cap? It’s pretty simple. Effectively, it’s the value of all outstanding shares multiplied by the price of a stock.
So, why is it important? Here’s what investors should know about how market cap plays into long-term investment considerations.
Understanding market cap mechanics
The biggest companies in the world have the largest market caps. Prominent examples include Apple Inc (NASDAQ: ...