- So, what are the most expensive shares, according to you? Well, it’s Berkshire Hathaway (BRK.A). Before the coronavirus pandemic market downturn, this A-class share traded for more than $300,000. It hit an all-time high of $347,000 per share in early 2020 before closing at $240,000 on March 23, 2020 right when the coronavirus spread hit the stock market.
Warren Buffet, chairman and CEO of Berkshire Hathaway happens to be the chairman and CEO of Berkshire Hathaway. It is an American multinational conglomerate holding company, headquartered in Omaha, United States of America. It owns more than 60 different companies across diverse sectors and owns significant stakes in as much as 20 other companies.
What are the other ‘most expensive shares?’ There were two other stocks with share prices above $100,000 as of March 23, 2020. For Pendrell Corp. Class A, from Specialty Business Services, the closing price was $153,000 per share. Then there was Bactolac Pharmaceutical, in the packaged foods space, the closing price was $120,000 per share.
The above shares were in the order of price per stock. If you want to to know which company’s stock is considered highest in value, then Amazon Inc tops the list as the most valuable company. Financial services entities around the world compiled this list. Certain stocks are priced high as the company may have never completed a stock split.
Market Value
Market value or market capitalisation is needed to understand the relative size of a company compared to others. Market cap measures what a company is worth in the open market, as well as the market’s perception of its prospects.
Market capitalisation is used to establish rational expectations over a given stock. It is used to formulate a solid portfolio investment strategy. Large caps are companies with a market cap of over $10 billion. Mid-cap companies typically range from $2 billion to $10 billion. Small-cap companies clock in at under $2 billion in market capitalisation.
Large-cap companies tend to have low but steady share price growth. Small-cap companies offer a higher return, at higher risk. The latter group of companies usually don’t pay dividends.
Microsoft is considered the largest US-listed stock with the highest market cap. Berkshire Hathaway ranks as the 10th largest stock with a market cap of about $391.9 billion. These players are followed by companies such as Apple Inc., Amazon.com, Alphabet Inc, Alibaba group LTD Holding ADR, Facebook and Johnson & Johnson, ExxonMobil.
Asset Classes
Market capitalisation has an impact on asset classes or categories into which stocks are grouped. In turn, this has an impact on mutual funds and ETFs. This capitalisation also has an effect on the ownership of individual stocks by institutional investors.
Domestic large-cap stocks usually comprise of 70% of US stocks by market value. These stocks have a market cap above $8 billion. Similarly, domestic mid-cap stocks generally consist of 20% of US stocks by market cap. The range of market capitalisation, in this case, is typically between $1 billion to $8 billion. Domestic small caps are in the bottom 10% of US market capitalisation.
Large-cap stocks, also called blue-chip stocks, usually have strong credibility, strong market recognition, productivity and financial stability. Hence, these stocks are considered to be very lucrative. Large-cap stocks are well established and have attained financial understanding. Thus their share value does not appreciate as much as mid-cap or low-cap stocks. They tend to give moderate returns. Returns on such stocks are derived from the dividend component.
Large-cap stocks have a robust financial infrastructure in place. Naturally, they react less to market volatility. Investment risk is less in the case of large-cap stocks. Unlike mid-cap
and small-cap stocks, large caps do not run the risk of dissolution during market contraction.
Also, due to its long history, large-cap stocks tend to be trusted more by potential investors. These stocks tend to be more expensive than others. They are the most liquid investment option in the market due to their immense popularity and high demand from buyers. These stocks are also, in most cases, most expensive than other investment options.
Some alternatives to large-cap stocks are mid-cap stocks. These companies have grown from a startup stage into a more developed business, usually with multiple business units or product lines. Mid-cap stocks are less volatile, and they tend to give regular returns. Mid-cap companies show immense potential for capital appreciation.
Small caps are smaller companies, often at the startup stage. They mostly tend to have only one product or service line, and they may not be well-capitalised. While these stocks often give high returns to the investors, they also carry more considerable risks.
Impact on mutual funds and ETFs
A lot of stock market benchmarks are market cap-weighted. These indices are populated with a cluster of stocks weighted by their relative market cap. Also, top holdings based on the market cap will have an undue influence on the performance of the ETF.
Conclusion
Over the decades, how businesses are viewed and reported has changed. Even the criteria in which companies are listed has transitioned based on intrinsic value and reputation. The fortunes of many companies are linked with market value. The market value represents expectations. Apple Inc. has been considered a valuable company for a very long time. Amazon comes a close second. While another company’s market cap might exceed Apple’s, it’s unlikely that another company’s stock price will exceed that of Berkshire Hathaway.
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