Ask Colin

What is the definition of "blue chip", "mid cap" and "small cap" shares?

The true answer is that there are as many definitions as there are users of these terms.

The ASX have "mid-cap" and "small" indices and you could use the companies in these indices for mid-cap and small-cap respectively. However, I am not sure what the definitions are and whether they are generally accepted. It also leaves a problem of defining the stocks that are outside the indexes, but similar to them. Probably the top 50 or top 100 Index stocks by capitalisation could be called "blue chip".

Blue Chip companies in most people's meaning and use of the term refers to companies that are (1) Large measured by capitalisation (2) Have well established businesses and a long history of making substantial profits. (3) Are therefore not likely to go bust in the short to medium term. Clearly, there is a large element of subjectivity, so that if you ask a dozen analysts to give you a list, the lists would comprise many common companies, but also many differences.

Blue Chip will generally then be companies that are in the top 100 by capitalisation, but some in that category may fail one or both of the other tests.

Mid cap stocks are probably those in the next 200 stocks by capitalisation, but again, some will be "temporary wonders" with hopes but little real business.

Below the top 300, will be small cap, but this will include many strange and highly speculative stocks. The "tail" will include some that are best described as "micro stocks", they are so small.

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