Glossary
Market Capitalization
Market capitalization is the total market value of a company's shares, calculated by multiplying the share price by the number of shares outstanding.
It is the standard measure of company size, dividing the market into large-cap, mid-cap, and small-cap segments. Most major indexes are cap-weighted: bigger companies occupy proportionally bigger slices, so an S&P 500 fund holds far more of its largest constituent than of its smallest.
Why it matters in practice
Cap tiers behave differently — small-caps have historically been more volatile with periods of outperformance, large-caps steadier — so the size mix is part of a portfolio's risk profile. Cap weighting also means "diversified" index portfolios can concentrate meaningfully in a handful of giant companies during periods when a few firms dominate the market, a feature worth knowing rather than a flaw to fix reflexively.
Related terms: Stock · Index Fund · Blue Chip · Growth Stock · Diversification