Market Cap vs. Price Per Share
The price per share of stock or price per coin in crypto is not what should attract or distract you from that investment. Let me explain…
Market Cap = Total number of shares for an asset multiplied by the price per share. Take Cocoa-Cola for example ($KO). They have 4.3 billion outstanding shares, the price per share is $51.22. This gives Cocoa-Cola a market cap of $220 billion.
Beginner investors will look at the $51 share price and compare it to another stock like Grubhub ($GRUB) with a share price of $66. They may think they can get more shares of Coke than Grubhub with the money they are willing to spend. So their return will be higher. This couldn’t be farther from the truth.
Here’s the kicker. The higher the market cap, the harder it is to grow that company, making the share price harder to increase. It takes so much more money to say 2x an already hundred billion dollar business. Grubhub however, has a market cap of $6.4 billion. Far less than Cokes market cap. For Grubhub to get to Cokes market cap, the share price would have to 33x. This essentially would 33x your initial money invested into Grubhub. If Coke were to 33x it would have a market cap of $7 trillion. The highest company market cap in the stock market is Apple with $2 trillion… Grubhub has a more realistic route, with higher potential gains.
If you were to take one thing away from this post it is this. The higher the market cap, the harder it is to grow that company. Making the share price harder to increase, so your gains wont be as large!! However, lower market cap assets are riskier because it takes less invested money for them to go bankrupt. I cannot preach this enough though, if you are young, invest in some riskier assets. Chances are you don’t have a lot of capital invested anyway, so who cares if you lose a lot of it? You have a lot more time in life to earn that money back. Your reward is way higher as oppose to just investing in large cap, conservative assets. Make sure to look at the market cap before buying assets. Quantity of shares is meaningless.