I. What is market capitalization?
Market capitalization is the amount of money spent to buy an entire business at the present time.
Viewing: What is capitalization
Imagine: 1 company is 1 case of beer and each can is 1 stock.
The price of 1 beer can is 10,000 VND (~ 1 share), then the value of 1 business (1 carton of 20 cans of beer) will be 10,000 x 20 cans = 200,000 VND. We call 200,000 VND the market capitalization of the business.
However, the business is not just 20 stocks but millions to billions of shares!
Example: VIC code (Vinggroup Corporation) above (photo: CafeF):
Illustration of the market capitalization of Vingroup (code VIC)
We have the price per share: P = 120,800 VND (RED ellipse)
Number of outstanding shares: KLCP = 3,345,935,389 shares. (stock terminology: The number of shares read is the volume of shares).
Then we have:
The market capitalization of Vingroup (VIC) is:
Price X KLCP = 120,800 X 3,345,935,389 = 404,188,994,991,200 VND!
(Approximately 404.2 trillion VND = 17 billion USD)
Based on the example above…
We have the formula to calculate market capitalization (capitalization value):
Capitalization = Price of 1 share X number of shares outstanding.
For example the MWG (Mobile World) code:
Market capitalization illustration of code MWG MWG share price is: P = 125,300 VND/share Number of shares outstanding is: Volume: 442,780,596 shares At that time:
(Equivalent to 55,480 billion VND = 2.4 billion USD)
Did you notice the BLUE BOX:
Market capitalization (billion VND): 55,480. — matches the results we calculate!
The pink and purple box is the market capitalization of Mobile World (MWG) company that has been calculated by Cafef!
Similar: Market capitalization you can find it listed on stock websites like:
Cafef.vn, cophieu68.com, vietstock.vn and websites of securities companies. You just need to read the item that says market capitalization or capitalization. Note: Websites may have slight differences when calculating the capitalization of stocks.
II. Take a look at the overall market capitalization of the entire stock market.
1.Capitalization of Vietnam’s stock market
Each listed company has its own market capitalization. Market capitalization is the price the investment community considers and trades at a time, it depends on the stock price movement!
Stock price depends on: Profit, level of risk, assets, prospects, and even the psychology of the crowd… Therefore, depending on the activities of the business, the market capitalization changes.
In addition, the market capitalization also depends on the issuance of additional shares to the public of the enterprise.
2.Top 20 companies with the largest market capitalization in Vietnam
Of all companies listed on the stock exchange:
VIC (Vingroup Group) is a company with Vietnamese capitalization with VND 404 trillion.
The next high-cap companies include: Vietcombank, Vinhomes Joint Stock Company (the company holds 70% of shares by Vingroup), Vinamilk Milk, and Vietnam Gas Company (GAS).
Although the Vietnam stock market has 1600 listed companies, only the 20 largest capitalization companies account for 64% of the total market capitalization value (accounting for 122 billion out of 190 billion in capitalization).
Up to 17/20 companies with the largest market capitalization in Vietnam’s stock market are located on the Ho Chi Minh Stock Exchange (HOSE), the remaining 3/20 stocks are on the Upcom floor. Because of the stricter and higher requirements, often large companies are listed on HOSE. Although there are 3 exchanges in Vietnam including HOSE, HNX, UPCOM, but for foreign investors, the VN-Index (HOSE) is considered a representative of Vietnam’s market index.
3. Global market capitalization 2018.
According to Knoema calculations, the global stock market capitalization was estimated at $67.6 trillion in 2018.
The market capitalization in the United States is 30,436 billion USD, accounting for 45.02% of the worldwide capitalization. In which, the top 5 countries include the US ($30.4 trillion), China ($6.3 trillion), Japan ($5.2 trillion), Hong Kong ($3.8 trillion). ), France (2.4 trillion USD) accounts for 71.37% of world capitalization!
In Southeast Asia in 2018, in terms of market capitalization, Singapore topped 687 billion USD, followed by Thailand ($500 billion), Indonesia ($486 billion), Malaysia ($398 billion), Philippines ($258 billion), Vietnam ($133 billion)
1st, 2nd, 3rd: Microsoft, Apple, Amazon. 4th: Alphabet is GOOGLE’s parent company. 5th: Berkshire Hathaway is Warren Buffett’s investment company. Eight of the 10 largest companies by market capitalization are: in the US, 2 companies are in China, 5 out of 10 are technology companies!
The capitalization is the value that changes daily (even seconds), it depends on the stock volatility. When the stock price goes up the stock capitalization goes up, when the stock price goes down the company’s market cap goes down!
III. How to divide companies by market capitalization
How to divide the world capitalization group
Currently, there is no standard to classify the market capitalization of each enterprise, but at a relative level, the world divides corporate capitalization into 6 groups:
Mega Cap: over 200 billion USD (Amazon : > 700 billion USD, Google > 700 billion USD, Buffett’s Berkshire Hathaway is 500 billion USD and many more)Big/Large Cap: 10 to 200 billion USDMid Cap: 2 to 10 billion USD Small Cap: 300 million to 2 billion USDMicro Cap: 50 million to 300 million USD Nano Cap: under 50 million USD
These numbers will also change over time, because the stock market will always appreciate in the long run and the capitalization of companies will grow larger.
How to group capitalization in Vietnam’s stock market
In the Vietnamese stock market, you will often hear the words Blue-chip, Midcap, Penny… In some respects it also represents the capitalization of stocks.
Although there is no official or scientific recognition of how to divide, in the Vietnamese market you can divide:
Large-cap companies: Market capitalization > VND 10,000 billion Mid-cap companies: 1,000 billion Small-cap companies (Small-Cap): 100 billion Companies with capitalization micro (Micro Cap): Capitalization
How to group capitalization in Vietnam’s stock market
P/S: The above assessment is only relative.
The Ho Chi Minh Stock Exchange (HOSE) also builds baskets of stocks based on specific market capitalization:
VN30: Large-Cap Group: As a capitalization index that measures the growth of 30 companies with the largest market capitalization and largest liquidity in the market, VN30 group accounts for about 70% of the entire market. VNMidcap: Is an index capitalization measures the growth of 70 mid-cap companies in Vietnam. VN100: A combination of 100 companies including 30 companies in the VN30 group and 70 companies in the VNMidcap.VNSmallCap: Designed to measure scale growth in small firms.
IV. Meaning of market capitalization
Market capitalization represents the size of a company, so this is considered important.
For mutual funds and many investors, market capital is the primary determinant of concern, for reasons of liquidity, and risk.
Market capitalization is a very easy and effective way to gauge individual business risk. The higher the capitalization, the lower the risk tends to be, and vice versa. Therefore, funds and investors will devise measures to diversify their portfolios optimally and bring high returns, within acceptable risk levels.
Large cap companies are usually long established. When investing in large companies, it usually does not bring great returns in the short term; however, over the long term, companies typically appreciate consistently in share prices and are paid out dividends. Established Mid Cap companies operating in the industry are expected to experience significant growth. growing rapidly, and is in the process of expansion. Therefore, these companies are often riskier than large companies, and they are attractive because of their growth potential. Small cap companies represent a young age, as well as a niche in the market. , the industry they target. Small companies are considered riskier due to their size, the markets they serve, and they are also more sensitive to the economy. As a result, small-cap companies are riskier, and their stock prices are also more volatile.
Even in the stock market, large-cap companies are the object of attention of most investors, so it becomes the nucleus of their investment portfolio.
In Vietnam, 30 stocks in the VN30 basket (Large Cap – Large Cap) accounted for 80% of the entire market’s trades – While the remaining 1500 stocks only accounted for 20% of the attention!
V. Market valuation of a country based on Market Cap/GNI (Buffett Index).
In addition to valuing expensive stocks through financial ratios such as P/E, P/B, P/S…, Warren Buffett uses the Market Cap/GDP ratio (GNI) to rate the stocks of a particular company. country is expensive or cheap.
If you want to know if stocks in a country like the US, Japan, Germany, Thailand, or Vietnam are expensive or cheap, calculate the entire market capitalization/GDP index every night.
See also: What is Failure – Redefining Failure
When comparing a country’s Market Cap/GDP ratio with historical averages, a country’s current valuation and expected returns are estimated.
Internationally, we often use the GNI index to be more accurate.
GNI = GDP + Net Foreign Income.
GNI is income based on nationality and GDP based on territory!
Example: A Korean company doing business in Thailand is calculated GNI for Korea and GDP for Thailand.
P/S: If you don’t have GNI figures then use GDP surrogate index (this is the number closest to GNI)
Evaluation of market capitalization/GDP indexes of some countries in the world:
Market capitalization index/GNI of countries
As we can see the RED box in the photo above,
Negative numbers represent negative correlation. That is, the higher the Market Cap/GNI index is compared to the historical average, the lower the market’s return in the next 3 years. And the lower the market capitalization/GNI, the higher the stock investment efficiency of the market!
When we look at the BLUE box, we see:
The Market Cap/GNI index was the lowest at the end of 2012, which is a premise for the world stock market in general to grow well in the next 3 years, and the following years.
Among them, some countries are relatively cheaper such as the UK, or Germany…
VI. Differences between market capitalization and market value
Difference between market capitalization and market value!
Market Capitalization and Market Value, both to assess the assets and value of the company. However, there are many differences in terms of calculation and accuracy.
Market capitalization = number of shares outstanding X current price of a stock. So it depends on the Share Price and the number of shares outstanding. Market value is also generally used as a substitute for market capitalization in listed companies. (but it’s not the same term)
However, the general nature is that it depends on factors related to the business from macro, profit, ROE, outlook… more often related to stock valuation.
VII. Investment strategy based on capitalization.
In the world, there are investment funds that specialize in large and medium-cap stocks, depending on the purpose and strategy of each fund.
In Dragon Capital often hunt big companies. Even investment legends have investment strategies like Buffett that often buy strong companies with large caps. Meanwhile, Peter Lynch likes to invest in small-cap growth companies.
Usually, over time, large, mid-cap or small-cap stocks will lead the market in turn because the group of stocks is often affected and sensitive to each stage of market or economic development.
That’s why many investors diversify, maintaining a mix of companies with different market capitalizations in their portfolios.
When the big stocks are falling, chances are the small or midcap stocks are moving up and potentially helping to cover the losses.
To build a portfolio with a mix of stocks of different capitalization. You need to consider:
Your financial goals Risk tolerance Time to invest Your understanding and knowledge
A diversified portfolio containing multiple market capitalization groups will help reduce investment risk in any sector, and help you pursue your future financial goals.
Long-term effectiveness, when you pursue a capitalization strategy:
Effectiveness of capitalization strategy in the last 10 years.
Effectiveness of capitalization strategy in the last 10 years. As we can see in the table above, we have:
Historical factors for several decades, hundreds of years: Buying a basket of small-cap companies gives a higher return than a basket of large companies. However, you should also note that the capitalization strategy also has its cyclical nature. .
To explain why small-cap stocks in the stock market are more effective in the long run, we have:
Usually small-cap companies, so when large investors, or funds want to buy shares, it is easy to affect the price and the price will increase. Small companies have the ability to grow faster. It is easier for a company with a revenue of 100 billion to increase to 200 billion than a company of 10,000 billion to 20,000 billion. Smaller companies are more risky, as Ngo shared above, a small company will be more risky, ie easier. fast rise and faster fall; because it has a higher tolerance for risk, it usually has a higher return.
VIII. Market capitalization investment strategy for retail investors.
Any investment strategy should come from the specific understanding of the investor himself. A young person will have different points from an older investor. An investor who saves 100 million/month, 40 million/month or 5 million/month will have different strategies.
In Vietnam, the majority of investors participating in the market have small amounts: Under 1 billion! (Probably several billion).
It seems that investors evaluate stocks more comprehensively. According to statistics, up to 75%-80% of stock trading value is concentrated in the 30 largest stocks;
However, with a small amount (about 5 billion or less) you completely “scan” the entire market to find the best stocks to bring high profit rates. You note for:
In the long run, if you choose small companies that have the potential to bring more profits than large companies. If all factors are equal, you should choose a company with a higher capitalization will be better. Using technical analysis should not choose companies with too small capitalization
IX. Summary and attention
Market capitalization = Price of 1 share X number of shares outstanding. The 20 largest capitalization stocks account for 64% of the entire market and the 30 largest stocks account for 80% of the total market capitalization. Market capitalization is Divided into three groups: large cap, mid cap, and small cap. Large-cap companies have less risk and less long-term returns. Small companies risk more and earn more. If you want to value a stock that is expensive or cheap in a country, you can look at the Market Cap/GNI or Market Cap/GDP index.
Common problems with individual investors:
There is no right investment strategy (it’s useless to run in the wrong direction). There is no investment strategy suitable for the investor’s career, understanding, time… and information, not to mention the interference of knowledge (wrong but think is right, go to hell)Wish to get rich quickly, despite the risks and knowledge. The psychology is not suitable, stable; influenced by crowd psychology.
See also: What is Gen Z
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Written by: Nguyen Huu Ngo.