Assume there are only two stocks in the world, Stock A and Stock B from Company A and B respectively. Company A is big, owning 90% of the workd’s output, while Company B owns the other 10%.
If you were to invest into each company, would you: (a) buy Stock A only, (b) buy stock B only, (c) buy both stocks in the proportion of 90-10, or (d) buy both stocks in equal weightage?
Different types of investors
If you went for Stock A, you are likely to invest in blue-chips. These companies are stable and give out dividends. Similarly, they don’t grow much since they are already so big.
If you picked Stock B, you are more likely to be a growth investor. Small capitalization stocks have traditionally outperformed large capitalization stocks and the market but they also come with greater risk of being completely bankrupt.
If you pick …Read the full article →