Ball Cap, Bottle Cap... Market Cap?

Posted: Updated:

What size is your market cap? Prudent investors know that company size is an important factor when building a portfolio. Large established companies tend to be more stable and predictable, while small companies with unproven potential can be risky investments. Is your market cap a good fit for you?

When it comes to the companies in your portfolio, size matters! Weight your portfolio too heavily with companies of one size and your retirement funds could be exposed to unnecessary risk or produce lackluster results. Confused about market cap? Here's what you need to know.

What Is Market Cap?

Market capitalization, or market cap, represents the total value of a company. Some investors make the mistake of assuming a high stock price means a high company value. Not true. The stock price actually tells you very little about its value. The company's market cap, however, represents the total value of that company’s equity shares.

Here’s an example:

  • Company A has approximately 4.2 billion equity shares with a current market price of $48 per share.  By multiplying the number of shares by the price per share, we determine its market cap is approximately $200 billion.
  • Company B has 28 million equity shares with a current market price of $312 per share. Its market cap is approximately $9 billion.

In this example, Company A is the tech giant Oracle. Company B is Chipotle Mexican Grill restaurant chain. Chipotle's share price is currently more than six times Oracle's share price. But Oracle has a market cap that is more than 20 times that of Chipotle. We would all agree that market cap is the appropriate indicator of a company’s value, not its individual share price.

Why Does Market Cap Matter?

Market cap measures what a company is worth on the open market. It also measures the market’s perception of a company’s future prospects, since it reflects the value investors place on its stock. Investors can use market cap as one way to diversify their portfolios.

There are three generally accepted ranges or categories to describe market cap:

  • Large-cap companies. Generally defined as having a $10 billion or more market cap, these companies are often nationally recognized household names with a reputation for producing quality goods and services. As dominant players in established industries, they typically demonstrate a history of consistent dividend payments and steady growth. Large-caps are considered the least risky among equity investments. The trade-off: less aggressive growth potential.
  • Mid-cap companies. Generally considered to have a total value in the $2 billion to $10 billion range, these companies are typically well established and are in industries experiencing or expected to experience rapid growth. A mid-cap company tends to be one in the process of increasing its market share and overall competitiveness. This stage of growth is likely to determine whether the company will live up to its full potential. Compared to large-cap companies, mid-caps tend to have more risk, but a greater potential for return.
  • Small-cap companies. With a value generally in the $300 million to $2 billion range, small-cap companies are often young companies found in niche markets or emerging industries. They're considered the most aggressive and risky of the three categories. Compared to mid- and large-cap companies, these firms have limited resources, making them more susceptible to a business or economic downturn. They are also vulnerable to intense competition and uncertainties. On the plus side, small-cap companies offer significant growth opportunity for long-term investors who can stomach volatile swings in the short term.

Which Cap Is Right for You?

That’s a trick question! Your equity portfolio should contain more than one market cap. Why? Companies in each of these three categories will react differently in various market environments.

If you are over-exposed in risky areas, your portfolio could take a huge hit when you least expect it. If you construct your portfolio too conservatively, your investment return can suffer when risk-averse assets are performing poorly. However, pairing risky stocks with more stable investments can potentially boost your portfolio's long-term return.


To build a portfolio with a proper mix of small-, mid- and large-cap stocks, you'll need to evaluate your individual financial goals and risk tolerance. A diversified equity portfolio that contains a variety of market caps helps reduce your investment risk in any one area and supports the pursuit of your long-term financial goals.

Anthony Harcourt is a Portfolio Manager at Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at or email Anthony.

  • Perspectives

    • How Well Are You Tracking Your Marketing?

      One of the first metrics business owners learn about is return on investment, or ROI. Earning the highest possible ROI is critical when running a business. You make investments with the expectation that you’ll have something to show for them. So how's the ROI on your investment in marketing and advertising? If you’re like most business owners, your answer is something like "I think it's pretty good" or "things seem to be working."



Company Name:
Confirm Email:
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections


  • Most Popular Stories

    • (photo courtesy Dax Norton)

      Whitestown Again Indiana's Fastest-Growing Community

      The town manager of Whitestown says he is not surprised the town is the fastest-growing community in Indiana for the seventh consecutive year. The Indiana Business Research Center at the Indiana University Kelley School of Business says the Boone County town's population grew 7.6 percent last year. In an interview with Inside INdiana Business, Dax Norton said the commercial, industrial and retail sectors are driving the continued growth in population. Using estimates from the...

    • No Degree, No Problem: Top Jobs that Don't Require a College Degree

      The professional job market is competitive, with most positions requiring a college degree just to get in the door. However, college is both expensive and a serious time commitment.  Many of those who can’t afford college are still in search of jobs that pay well and can provide a career pathway to a sustainable life. Some of these men and women are skilled at working with their hands and want to apply their craft to something other than an office setting.

    • Indy-to-Paris Flight to Take Off

      City and state officials will Thursday and Friday celebrate the beginning of Indiana's first nonstop transatlantic flight between Indianapolis International Airport and Charles de Gaulle Airport in Paris. The celebration will culminate with Governor Eric Holcomb returning from his sixth international economic development trip and delivering the Indy 500 green flag to the Indianapolis Motor Speedway. Lieutenant Governor Suzanne Crouch and Indianapolis Mayor Joe Hogsett will join...

    • Long John Silver's Acquires Indiana Restaurants

      Louisville-based Long John Silver's has acquired more than 70 restaurants, most of which are located in Indiana, from Jasper-based ServUS. Financial terms of the deal were not disclosed, however the company says no jobs will be affected.

    • (photo courtesy Indiana Economic Development Corp.)

      Hoosier Delegation Travels to Germany

      Governor Eric Holcomb’s economic development trip to Europe continued with a stop in Germany. The Indiana delegation met with government, business and academic leaders in an effort to share best practices on “strengthening education and workforce development to support growing, diversified economies.”