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 …