Friday, February 24, 2012 A stock's market capitalization
(market cap) is computed by multiplying the stock price by the
number of shares outstanding. So, if a stock's price was $50 and
there were 10 million shares, the stock's market cap would be
$500 million. Stocks can be separated into 4 groups, according
to their market capitalization: 1. micro caps - below $300
million 2. small caps - between $300 million and $1 billion 3.
mid caps - between $1 billion and $5 billion 4. large caps -
over $5 billion I talk in more detail about market cap analysis
in my book Stock Trading Riches because it's important for
investors to allocate their portfolios among all market caps to
provide diversification, avoid cyclical returns, and take
advantage of "regression to the mean" (e.g. one market cap
segment outperforms another, but then they converge). Market cap
is calculated by multiplying the number of shares outstanding by
the share price. For example, if stock ABC issued 6 million
shares, and the price of each share