Most Beginning Investors Ignore Market Cap. That's a Costly Mistake.
Key PointsBeginner investors often use the share price figure to determine a stock's size or relative "cheapness," but this is a major mistake.
Beginning investors often overlook market capitalization when evaluating stocks, a critical mistake with potentially costly consequences. Share price alone fails to accurately determine whether a stock is large or small, or whether it is cheap or expensive. While subjective valuation and growth metrics come into play for gauging "cheapness" or "expensiveness," market cap remains a fundamental metric for assessing a stock's size.
Determining whether a stock is "big" or "small" is primarily a matter of examining its market capitalization. Market cap represents the market value of a company's equity, calculated by multiplying its stock price by the number of shares outstanding. While market cap should not be the sole factor in investment decisions, it provides an essential high-level view of a company's scale and long-term growth potential.
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