>> Large Cap Vs Small Cap Stocks

Stock market investors often characterise themselves by the size of companies they invest in. Size in stock market terms is not measured by looking at the value of a company's assets but by the total value of its shares in the market, known as the market capitalisation or market cap.

Big companies will often be referred to as large caps or, in the UK, as blue chips while smaller firms are known as mid caps or small caps. Shares in these three different size categories often perform in a similar way. The largest companies, for example, are usually more attractive to overseas investors because their shares are traded more frequently which makes them easy to buy and sell. Big companies are also more attractive to investors during a recession because they dominate their markets and therefore it is thought less likely to go bankrupt than smaller firms.

But large companies are very well researched by professional investors and this can make it harder to find ones that are undervalued. They also tend to produce lower growth rates than smaller companies. For this reason some investors prefer focusing their portfolios on this part of the market. Investing in smaller companies can, however, be more risky as these firms are more likely to suffer financial or liquidity problems than larger companies.

Other investors, however, think that it makes more sense to move between large, medium and smaller companies as market conditions dictate. These investors are often said to have a multi-cap approach to investing. We, at St. Paul's Equities, focus on the Small Cap stocks, which is where we believe the real growth lies.