As we mentioned before, the market cap is only one metric that an investor will use in their fundamental or technical analysis of a company. And when you get right down to it, it really only tells you for certain the size of the company. From there, you can begin to make some assumptions about the growth potential and potential volatility of a given stock.
In general, investors should own all three types of stocks. This is because, at any given moment, one or more of these categories may outperform another. By diversifying your portfolio to include all types, you can find the right mix of growth and stability that you want.
You can buy shares of stock in individual companies. To do this you need a way to measure one company's returns against similar companies. For large-cap stocks, the S&P 500 is an index that you can use to measure one stock against another. For mid-caps, the S&P MidCap 400 is a useful index and for small-cap stocks, you can use the S&P SmallCap 60 or Russell 2,000 indices.
To further help you diversify, many mutual fund companies cater to investors by having funds that specifically invest in stocks with the same market capitalization. Many mutual fund investors like the idea of knowing they have diversification without having to take the time to research the stocks themselves. As with selecting individual stocks, you’ll want to make sure that you divide your investment among different-sized companies.