Investment Strategies in Large Cap Stocks
Large Cap stocks are stocks of high market value, defined by a company’s total number of outstanding stocks multiplied by the average stock price. The amount that determines inclusion in this category varies; usually it is in excess of several billion dollars. Large cap stocks are stocks of either large cap companies or of small/medium cap companies that experience a temporary boost in their stock price due to buyer’s interest. Large cap companies are usually very big and stable, have a large contribution in the market capital and therefore more reliable to invest in.
An investment strategy encompasses rules and tips that investors should keep in mind when considering investment. Some buyers could pursue investment passively by decreasing their investment costs while others want to increase their returns hence follow a more active approach. It is fundamental for the buyers to decide if they require making a long term investment or short term and whether they are willing to take risks or not.
Investing in large cap stocks is for those who are looking for a less risky and long term investment.
As a buyer, one should conduct a market survey using financial data, competition information, foreign exchange rates and similar parameters. The first step to investing in large cap stocks is to identify large cap companies. Companies that are large in size, have a dominating market capital and that are mature and stable may have lesser growth rate, will definitely have high stock price with rare variations in stock price. Due to the maturity factor of large cap companies they tend to have a predictable future, hence investment in their stocks will be a low risk one. Such investments will also being continuous returns due to stability of these companies. Due to dominant market share, investors of large cap companies enjoy grand dividends. With all the benefits of large cap stock investment, the only drawback from which the buyers suffer is lower return due to smaller growth rate. Large cap investors can further benefit if they follow the right strategy. For example, buying the stocks and holding on to them for a longer time can give provide high returns.
If a buyer is looking for uncomplicated strategies, referring to indices is a good idea. The investment to an index fund is distributed across the set of companies that make up the index value and the return is calculated in the same manner based on stock prices of the member companies. So if an investor invests in the Dow Jones 80 --- index, he/she will be buying shares of all the companies in that index. This strategy is based on the premise that companies with high yield are seeing a drop in their stock price, and will subsequently recover. This is a theory that is backed by historical data. A similar but flexible alternative is investing in large cap mutual funds in which the stocks that are part of the fund are not fixed unlike in an index. An investor relies on a manager of the mutual fund to make the best combination of stocks suited to the requirements of the investor.
Buyers can also target strong industry leaders like companies with technological back ground. It is a common trend to invest in giant companies like Microsoft and IBM because of their proven potential to grow, ability to beat competition and remain at the top. Large cap stocks might look very lucrative for long term investors but due to various economic and political aspects, it might be risky for one to hold any large cap stocks for years together with out keeping an eye for a watch on the industry as well as specific stock movement.