DEFINITION of 'Law Of Large Numbers'
A principle of probability and statistics which states that as a sample size grows, its mean will get closer and closer to the average of the whole population. The law of large numbers in the financial context has a different connotation, which is that a large entity which is growing rapidly cannot maintain that growth pace forever. The biggest of the blue chips, with market values in the hundreds of billions, are frequently cited as examples of this phenomenon.
INVESTOPEDIA EXPLAINS 'Law Of Large Numbers'
As an example, assume that company X has a market capitalization of $400 billion and company Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must increase its market capitalization by $200 billion, while company Y would only have to increase its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more likely that company Y will be able to expand by 50% than company X.The law of large numbers makes logical sense. If a large company continues to grow at 3050% every year, it would eventually become bigger than the economy itself! Obviously, this can't happen and eventually growth has to slow down. As a result, investing in companies with very high market capitalization can dampen the potential for stock appreciation.
RELATED TERMS

Large Cap  Big Cap
A term used by the investment community to refer to companies ... 
Small Cap
Refers to stocks with a relatively small market capitalization. ... 
Moore's Law
An observation made by Intel cofounder Gordon Moore in 1965. ... 
Mega Cap
The biggest companies in the investment universe, as measured ... 
Appreciation
An increase in the value of an asset over time. The increase ... 
Market Capitalization
The total dollar market value of all of a company's outstanding ...
RELATED FAQS

What is a company's worth, and who determines its stock price?
A company's worth  its total value  is its market capitalization, and it is represented by the company's stock price. Market ... Read Full Answer >> 
What is the difference between a simple random sample and a stratified random sample?
Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >> 
What are the advantages and disadvantages of using systematic sampling?
As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >> 
What is the difference between the standard error of means and standard deviation?
The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >> 
What is the theory of asymmetric information in economics?
The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >> 
How does market risk differ from specific risk?
Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
Related Articles

Mutual Funds & ETFs
Which Mutual Fund Market Cap Suits You?
Different funds invest in companies with different market caps. Find out which is right for you. 
Markets
Understanding Small And BigCap Stocks
If you don't realize how big smallcap stocks can be, you'll miss some good investment opportunities. 
Insurance
Market Capitalization Defined
Find out the differences between mega, large, mid and smallcap stocks and how each suits different investing styles. 
Investing Basics
Invest Without Stress
Have anxiety? Don't worry. We have your worryfree investing guide right here. 
Markets
An Introduction To Small Cap Stocks
When it comes to a company's size, bigger isn't always better for investors. Find out more here. 
Economics
What Is Supply?
Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics. 
Economics
Modified Internal Rate of Return (MIRR)
Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation. 
Fundamental Analysis
What is Quantitative Analysis?
Quantitative analysis refers to the use of mathematical computations to analyze markets and investments. 
Fundamental Analysis
Understanding the Simple Random Sample
A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen. 
Economics
What is Systematic Sampling?
Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample.