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This lesson provides a guide to some widely recognized equity groups such as company size and location to help you build a well diversified portfolio that represent a broad range of categories.
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Market cap measures what a company is worth on the open market, as well as the market’s perception of its future prospects, because it reflects what investors are willing to pay for its stock.
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Industries and sectors are terms used by financial analysts to break down the stock or equity market. This is important to investors because sectors and industries form the framework for investment research, portfolio management, and asset allocation.
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In order to understand a company’s fundamentals, an investor should first determine what accounting rules might have been used to compile reports and whose laws define the company’s governance practices.
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Take note of the ADR risk factors and expenses section. Because ADRs are issued by non-U.S companies, they entail special risks inherent to all foreign investments and may be subject to periodic service fees as well.
The equity universe is vast, which can make choosing investments difficult. But viewing companies in terms of their categories can help you find order in the chaos.