Small cap value stocks

From an interesting public article on Market Watch

If it makes good sense to invest in value stocks (it does), and if it makes good sense to invest in small-cap stocks (it does), why not combine the two and invest in small-cap value stocks? Based on 87 years of performance data, it’s a sound strategy. In fact, small-cap value stocks have (in the long run) far outperformed large-cap blend stocks, large-cap value stocks and small-cap blend stocks.

In the long run, small-cap value is the undisputed champion of these four major asset classes. But the operative phrase there is “in the long run.” Over shorter time periods, small-cap value stocks can be disappointing.

Some numbers: From 1928 through 2014, U.S. small-cap value stocks turned in a compound annual return of 13.6% (compared with 9.8% for the Standard & Poor’s 500.

At 13.6%, an investment of $1000 in small cap value stocks would have grown to more than $65.0 million over those 87 years (compared with slightly less than $3.5 million for the S&P 500).

However, investors don’t actually achieve average returns. They get real returns, one year at a time.

In its best year, 1933, the small-cap value index was up 125.2%. (Pretty amazing for the middle of the Great Depression.) But only two years earlier, this asset class suffered a loss of 54.7%. I imagine that was bad enough to discourage all but the hardiest of investors. So it’s a safe bet that a lot of people who understood the theoretical merits of small-cap value investing had their money (what was left of it) somewhere else in 1933. Too bad……


At 13.6%, an investment of $1000 in small cap value stocks would have grown to more than $65.0 million over those 87 years (compared with slightly less than $3.5 million for the S&P 500).

Do you know anyone who has bought $1000 worth of a small cap value stock and held it for 87 years? If he bought it at 18 he would be 105 years old. That’s the age that my next door neighbor Marcel died at.

A fast growing small cap won’t stay small cap for long so you have to rotate your small caps. Also, no one small cap comes with a money back guarantee. My guess is that for the one that outperforms three lag or crash altogether. I wonder if the statistic touted in the article made adequate provision for survival bias. One criticism I’ve heard of small cap statistics is that they were actually relying on large caps that had shrunk to small caps after the 1929 crash.

One of the fastest growing companies of the past decade has been the largest cap of them all.

No, I have nothing against small caps, I have quite a few in my portfolio. My beef is the very same as for advice based on what the market is doing, it’s irrelevant, you have to buy your stocks one by one.

Denny Schlesinger


So, the moral of the story is: get in, diversify, study, and keep on.

Run like a hare and a tortoise, while watching like a hawk and being faithful as a turtle dove.

Someone other than Shakespeare


Small cap value stocks-- just buy VBR.
Especially as an addition to SPY .

Take a look at POAGX. Mid cap growth but great returns.

Fool on,

what about VIOV for smalls
in addition to
RPG for bigs

TDA shows POAGX as closed to new investors. Looks like it’s been closed for more than a year.