In Focus

The Stock Exchange Swap Meet

If you weren't around yesterday, first of all, why weren't you? It was a great day here at chickslayingnesteggs.com. So many things happened. Ummm.we had two new visitors to the site. And, ahhhhh, we posted about our new Yahoo purchase over on the Chicks Message Board. Oh, yes, I remember now, the Chicks started a fictitious skin care company called Cracking Eggs Creameries and we were getting ready to sell some stock in it. [Click here to read yesterday's article.] Today I will explain how that is done, and where it would be sold.

When A.J. Daughters Brokerage Firm goes to sell shares of Cracking Eggs Creameries stock, they have to do it on an exchange -- on a Stock Exchange. This is the place where cash is exchanged for stocks. Compare it to a Swap Meet. Chick Cheryl is Queen of Swap Meets... but who wouldn't be if you had that Rose Bowl Swap Meet within miles of your house. If you've ever been there, I'm sure you've seen her. She's the one with the sixteen bags, two screaming kids and dog that can't top lifting its leg.

The different U.S. stock exchanges are New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Each of the exchanges have requirements your company has to meet before you can sell your stock at their swap meet. The main requirement has to do with their market capitalization.

"Karin, Karin tell us what market capitalization is."
Have you noticed how Chick Julie always interrupts me?

Market Cap

"Market cap" is short for market capitalization, and easier to say, too. Don't confuse this with the cap Cheryl wears to the market. I mean, it's cute, but the daisies springing out of the top are a bit gaudy. See, I told you you've seen her before.

To figure the market cap of a company you take the number of shares out in the public (outstanding), or owned by the public, and multiply it by it's trading price that day. So on the first day of Cracking Egg Creameries going public, it had 300,000 shares to sell (or outstanding). Now multiply that number by it's trading price of $10. CRAK's market cap is $3 million!

Market Cap Classifications

Companies are grouped into Micro-Cap, Small-Cap, Mid-Cap or Large-Cap depending on their company's market capitalization.

Large-Cap stock, also know as the "blue-chip" stock, are companies with at least a $5 billion dollar market cap.

Mid-Cap: $500 million to $5 billion.

Small-Cap: $150 million to $500 million.

Micro-Cap: below $150 million.*

The exact number tends to vary book to book, or year to year, but you get the picture. CRAK would be Micro-Cap, but just wait until we start exporting our creams to South America. I can see the stock price soaring already... which in turn will increase our Cap.

Market Cap at each Exchange

Now, back to our three different exchanges. The New York Stock Exchange (NYSE) is the biggest and the oldest of the three exchanges and it's located in, duh, New York. It's on Wall Street in Manhattan. To make the NYSE you have to have at least 1.1 million shares of your company outstanding and have a market cap of at least 18 million. Some of the companies that are listed on the NYSE are: Wal-Mart (WM), America Online (AOL), Home Depot (HD), and General Motors (GM). Companies are identified on the NYSE by ticker symbols (the alphabet letter combination used to represent them). The NYSE tickers contain 1-3 letters.

The second biggest of the exchanges is the NASDAQ. There is no city that the NASDAQ is located in, and you can't physically go watch the wild and crazy guys in suits running around with pieces of paper flying out of their hands. All the stocks listed on the NASDAQ are traded over a network of computers. Buying and selling is just a mouse click away. Most of the stocks listed on the NASDAQ are technology oriented, like Microsoft (MSFT), Cisco (CSCO), Yahoo (YHOO), and Amazon (AMZN). Little Chick Tip for you... NASDAQ ticker symbols contain four letters to identify the company.
To be listed on the NASDAQ you must have a market cap of $75 million.

The third and the smallest of the swap meets is the American Stock Exchange (AMEX or ASE). To be listed on the American Stock Exchange, you need to have at least 250,000 shares outstanding and a market cap of at least $3 million. I think Cracking Eggs Creameries will give them a call.

And, next time you're at the Swap Meet, please don't let on when you see Chick Cheryl that I mentioned her silly Market Cap. Just stare for a couple of seconds and giggle.

* Taken from the Motley Fool Investment Guide by David and Tom Gardner.