March 17

Today’s Letter from Grandma Sylvia

Many Stocks 485846

Dear Reader,

Stocks and bonds are the bedrock of the stock market.

In addition, today we have index funds and index ETFs that many of us use for simple investing.

While it’s not necessary to know a great deal about stocks and bonds, I’m writing this letter to provide some basic information for those interested.  (I’m not writing about bonds because, for me, buying individual bonds is more complicated than buying individual stocks.)

This is a rather long, detailed letter for those who want to know more, but the examples I’ve chosen should be familiar to most readers.

Vector money tree growth concept in flat style

A Story

As I’ve written in earlier posts, when I became an investor I started with a few stocks and learned as much as I could about them.  Later, I found it was better to invest in index funds because it’s easier with less risk.  Putting money into a few stocks can be very risky…or very profitable if you are smart/lucky.  Most of us are not. Some of my early stocks I later sold, a few for a small profit and a few for a small loss.

However, it was useful for me to do this initial studying because I feel more comfortable knowing about stock market basics.  Today, with the global economy, there are a bewildering number of stocks.  With so many stocks, it’s important to have ways to categorize them. I’ll write about one way here.

old world map

Behind every stock is a company. Find out what it’s doing. Peter Lynch


Buy not on optimism, but on arithmetic. Benjamin Graham


Know what you own, and know why you own it.  Peter Lynch


The four most dangerous words in investing are: ‘this time it’s different.  Sir John Templeton


Today’s Topic: Stocks

Investors who buy individual stocks need to learn about the companies issuing the stocks to make good decisions on risks and rewards.  They may also want to diversify the types of stocks they buy and learn how stocks are categorized.

Companies that issue stocks can be categorized in many different ways1. A few are:

  • Company size: Small to large
  • Company style: growth vs value
  • Market sector the company is in: 10 categories that include energy, consumer staples, etc.
  • Geography of the company: domestic vs international

Today, I’ll only write about size and style.

Morningstar2 has created a style box that uses company size category and value/growth category as shown below.

M style box

Interested readers can use the reference at the end for the details of the Morningstar Style box.  For simplicity here, I’ll explain the style box using examples and then will provide the technical definitions.

Style box with GREEN COLOR names

It’s important to note that stocks are recategorized from time-to-time based on changes in the company and the market.  Stocks can be recategorized from small to mid to large cap, or from value to growth, or some other variation.


Large-Cap Value

Let’s start with Walmart in the upper left of the box.  Most of us think of Walmart as a large company. Stock analysts have determined that, in general, its price is lower than the value the company is worth.  That’s a value stock.

Large-Cap Core.

In the middle of the first row is Apple. I don’t have a reference, but not too long ago Apple was categorized as a value stock; now it is a core or blend of value and growth:

Large-Cap Growth

In the right-hand corner is Amazon.  It would be hard to find anyone who didn’t know about Amazon and its spectacular rise in size.  Amazon has made Jeff Bezos the richest man in the world.


Mid-Cap Value

At the left is Campbell  a long-standing soup company that is being challenged by new brands.  It’s a mid-sized company and one that analysts categorize as value.  Over time, it will be interesting to see what happens to Campbell soup.

Mid-Cap Core.

In the middle is Carnival Corporation. It’s the largest travel-leisure company in the world, including ten cruise lines, such as Carnival, Holland America, Princess, Cunard, and Seabourn.  Depending on the economy, the interests of people traveling, and the age demographics, Carnival may continue to be a growth company

Mid-Cap Growth

At the right is Chipotle Mexican Grill. It has over 2000 locations.  At one time, McDonalds became a major investor but is no longer affiliated with Chipotle.  (By the way, McDonalds is Large-Cap Core.)


Small-Cap Value
At the left is Lions Gate Entertainment an American company. It produces motion pictures and television productions, among other divisions. Some well-known films include: The Hunger Games, Rambo, and La La Land.

Small-Cap Core

In the middle is Hilton Grand Vacations a company that deals in resort timeshares around the world. There are over 120 resorts listed online.

Small-Cap Growth

At the right is Yelp, Inc an online local search service featuring customer reviews of local businesses. Its revenues come from advertising.

Again, for interested readers, any publicly traded company can be found online by simply inserting the company name and the word Morningstar into a search engine, such as Google.  On the first Morningstar page will vw many details about the stock, including its place in the style box.

Finally, here are the definitions of the concepts from the Morningstar Style Box.

Capitalization 3:

Market capitalization refers to the total dollar market value of a company’s outstanding shares. Commonly referred to as “market cap,” it is calculated by multiplying a company’s shares outstanding by the current market price of one share. Investopedia

Size 4

Large-cap: more than $10 billion.

Mid-cap: $2 billion to $10 billion

Small-cap: $300 million to $2 billion.


Value:  a stock that tends to trade at a lower price relative to its fundamentals, such as dividends, earnings and sales

Growth:  a stock that is anticipated to grow at a rate significantly above the average for the market. These stocks generally do not pay dividends, as the companies usually want to reinvest any earnings in order to accelerate growth in the short term

Core:  a combination of both value and growth.

That’s it.  A basic look at two ways to categorize stocks.  At this point, some readers might be throwing up their hands!  (Another reason why a simple three index-fund portfolio is so easy to use.)

colored hands

Important Idea

♦ Investors who buy individual stocks can learn about two characteristics of stock companies by using the Morningstar Style Box.


Today I’m going to celebrate St. Patrick’s Day.  I wish everyone the Luck of the Irish and a touch of the Blarney.

St Patricks Day


1.Types of stocks

  1. Morningstar Style Box.
  2. Market Capitalization
  3. Size
  4. Value
  5. Growth
  6. Core