In short, yes. Large and small companies have different characteristics for investors to consider.
Large Capitalisation: Benefits and Risks
These companies are typically household names that have been around for a while, such as the Commonwealth Bank of Australia, Telstra and BHP Billiton. They tend to be more stable than small companies – they may not produce triple-digit returns, but they are often less volatile during turbulent markets.
Large capitalisation companies are more liquid, meaning there are more buyers and sellers. There is also more research and data, like company financials, available for investors to review.
Small Capitalisation: Benefits and Risks
Small capitalisation companies are often new or young companies with a shorter track record. They tend to be companies with a simple operation in a single geographical location, making them easier to understand. When you consider accounting measures such as earnings or book value, small capitalisation companies are often more affordable than their larger counterparts. But the key attraction of this market segment is the growth potential small capitalisation companies offer.
This however comes with its risks. Because this is a more niche segment, there may be a lack of research and market data available. These companies may also have high business risks and tend to be thinly traded on the market. And because these are often less established companies, they can potentially be more volatile than some well-establishedlarge capitalisation stocks.