It’s (Still) a Small (Cap) World

I was just clicking around on WSJ On Line, when I came across a great new page of resources:
Markets Data Index. Tons of good stuff, charts, resources.

I randomly click on one page — and found this chart on market capitalization: "Small caps, stocks with market capitalizations of less than $1.5 billion, offer investors a chance to
outperform the broad market, but are prone to price swings."

Weekly Market Screen
click for larger chart:


Source: WSJ

In the Long Term Small-cap stocks
vs. large-cap stocks in good
market times
and bad. One
size usually
dominates at
any given time.


Weekly Market

WSJ, January 29, 2006

What's been said:

Discussions found on the web:
  1. camille roy commented on Jan 30

    I have a question, and if it’s not too much bother, perhaps you could answer it for me. I’m a non-econ, and I trust your judgement, as a regular reader (and big fan!) of this blog.

    Bloomberg, quoted below, mentions that capital spending has underperformed in this recovery.

    My question is, is globalization a factor in the underperformance of capital spending throughout this recovery? Have the resources which in previous recoveries were used for capital spending been directed to China (and other rapidly developing countries)?

    Capital spending has consistently underperformed the fundamentals, including strong corporate cash flow and tax incentives, during the current expansion. And it’s not apt to overcome those obstacles now, according to economists at Citigroup Inc.

    “The sweet spot for robust business investment growth this cycle has passed,” the economists write in the Jan. 6 edition of “Comments on Credit.” “With the exception of periods of accelerating trend productivity growth, capital spending responds very powerfully (with a lag) to aggregate demand trends, especially consumer demand.”


  2. Larry Nusbaum, Scottsdale commented on Jan 30

    Here are some fascinating statistics that can help one asset allocate by style:
    Small Cap Value returns from 1927-2004: 14.7%
    Micro Cap returns from 1927-2004: 13.0%
    Large Cap Value returns from 1927-2004 : 11.7%
    Large Cap Growth returns from 1927-2004: 9.5%
    This tell us that Large Cap Growth companies are too large and too mature. Next, the risk premiums, over the long term, to achieve a better rate of return, goes down when you invest in value funds within the Small Cap Sectors. Next, a portfolio of 60% S&P 500 index and 40% Lehman Bond index from 1973-2004 will return an annual return of 10.4%. If you change the mix to 30% S&P 500 index, 40% Short-term Bonds and 30% US Micro Cap the return goes up to 11.8% per year. Now, if you further diversify into 30% to International (small and large and emerging), and 30% into US (small value and large value and S&P 500) the return goes to 13.1% per year with less risk than the first two portfolios.

  3. Lord commented on Jan 31

    All statistics are backward looking so the real question is what the numbers will be going forward. Small caps have two advantages, lower p/es which increase as they grow, and attractiveness as takeover candidates by larger companies. They also bear higher risk individually, but not necessarily as a group, particularly value.

    About the only good in cap-ex will be if increased Asia investment leads more jobs here. It seems doubtful.

  4. Larry Nusbaum, Scottsdale commented on Jan 31

    “All statistics are backward looking so the real question is what the numbers will be going forward.”


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