Should You Avoid Stocks with a Market Cap Under 100 Billion Yen? Stock Selection for Beginners

Choosing stocks for investment is quite a dilemma, isn’t it?

It is said that it is easier to aim for a ten-bagger when the market capitalization is small.

When I first started investing in stocks, I used to choose stocks with small market capitalizations. Is that the right approach?

In this article, I have written an easy-to-understand guide for beginners on the question: Should you avoid buying stocks with a market capitalization of less than 100 billion yen?

I hope this will serve as a reference for stock beginners who are struggling with how to choose stocks.

What is market capitalization? A guide to judging company size

When you are investing in stocks, you often see the term “market capitalization.”

Simply put, market capitalization is the total value of a company as evaluated by the stock market.

The calculation method is “stock price x number of shares issued.” For example, if the stock price is 1,000 yen and the number of shares issued is 100 million, the market capitalization is 100 billion yen.

Generally, companies with large market capitalizations are called large-cap stocks, and smaller companies are called small-cap stocks.

However, just because a company has a large market capitalization does not mean it is an excellent company, nor does a small one mean it is a bad company.

So, how should you think about market capitalization when buying stocks?

This time, I would like to consider this, including the risks of small-cap stocks.

Are small-cap stocks with a market capitalization of less than 100 billion yen high risk?

Companies with small market capitalizations may have weaker business foundations or larger fluctuations in performance compared to large companies.

Also, for stocks with low trading volume, you may not be able to sell at your desired price when you want to sell.

This is important.

On the other hand, small-cap stocks have significant room for growth, and there is a possibility that the stock price will rise significantly as business performance improves.

If you are aiming for a ten-bagger (a stock price that increases tenfold), focusing on small-cap stocks is one way of thinking.

(Some investors do recommend stocks with small market capitalizations for ten-bagger investment strategies!)

However, the possibility of a significant stock price increase also means there is a possibility of a significant decrease.

Rather than deciding that a market capitalization of under 100 billion yen is dangerous, it is important to make decisions by also checking performance, financial status, and trading activity.

How should stock beginners use market capitalization for stock selection?

So, how should you actually use market capitalization when choosing stocks?

I use 100 billion yen in market capitalization as a benchmark. However, I do not make it a rule not to buy if it falls below this.

For example, for companies with a market capitalization of 30 billion yen or less, I check the stability of their performance, financial situation, and trading activity more carefully.

Of course, even if the market capitalization is large, you cannot be at ease if the stock price is overvalued or the performance is deteriorating.

It is necessary to make judgments by also considering financial results, future performance forecasts, and stock price movements.

Do not decide which stocks to buy based solely on market capitalization; use it as a guide to understand the company’s size and risks.

I think that is a good way for beginners to approach it.

I am thinking of reviewing the stocks on my watchlist, but I don’t think it’s necessary to remove them from the list just because their market capitalization is small.

Summary: Should you avoid stocks with a market capitalization of under 100 billion yen? Stock selection for beginners

I am currently creating and tracking a watchlist of over 100 companies, and when I re-checked the company sizes the other day, quite a few of them were companies with a market capitalization of under 100 billion yen.

When I started stock investing, I read books by investors aiming for ten-baggers and put companies with small market capitalizations on my watchlist.

Since then, I have been in the process of revising my investment method to choose stocks with higher certainty rather than aiming for ten-baggers.