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MagicDiligence (< 20)

5 Reasons To Own Small Cap Value



March 02, 2008 – Comments (1)

This is the first in a series of articles examining how and why to own small cap, value based stocks.  This is an important component of the Magic Formula, and most companies on the overall screen fall  into this category.


1) They Outperform Every Other Class of Stock.  Period.


Ibbotson Associates analyzed data from 1926 to 1997 and concluded that small cap value stocks outperformed the general market by 4.3% annually - more than any other class of stocks.  Vanguard has published data that shows that, from 1927-2004, small cap value outperformed large cap value, blended, and growth portfolios.  A Fama and French study shows this class outperforms all others in recessionary periods as well.  This study (PDF) by Fund Evaluation Group shows that small cap value has outperformed every other group, and by a wide margin.


If we want the best returns for our portfolios, we have to invest in the best performing class of stocks...


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1 Comments – Post Your Own

#1) On March 03, 2008 at 2:28 AM, DemonDoug (31.56) wrote:

Problem with small cap value nowadays is that a lot of them are REITs.  I sold my small cap value index fund last february and it was a great decision.

Give it another 2 years or so.  I agree small cap value is the best, but you need to let the RE and financials shake out and then go in.

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