Small caps are the root of American entrepreneurship. I believe some large caps like JNJ, BA and even MO will do well, but overall, owning large caps is a defensive strategy.
This chart compares the S&P 500 to the Russell 2000 from 1/1/97 to 12/31/99. Small cap was dead. There were headlines and TV segments devoted to why small cap will not work, yada yada yada.
There is no reason to disagree or agree with Faisal's statement. This chart pattern will repeat in the future.
I'm sure reader OG will get on me here but patterns and cycles repeat. Large cap to small cap and back to large is one of these cycles. It does not make sense to give up on either one.
At times you will favor one over the other and you will be right on that call sometimes and wrong other times.
10 comments:
Again:
1995-2000 Best=Large Cap Growth
Worst=Small Cap Value
2000-2005 Best=Small Cap Value
Worst=Large Cap Growth
Rarely can you see such a clear line of distiction.
Have been adding some to my IOO lately.
g
george underscores the point. he could be a stock market genius or a young guy just trying to manage his 401k. Rebalancing does not preclude either type of investor.
It was Sir John Templeton who said, quite correctly, " Achieving a good investment record is a lot harder than most people think."
g
Both large and small caps have consistently shown cyclical moves in the past. That is a fact.
But looking out into the future I am less sure of the next move. I fear a secular downtrend rather than a cyclical move in large caps.
Bill Gross describes this much better in his May column about GM. He calls GM the "Canary in the Coal Mine for US Industry."
"Mainstreet Americans know that the auto industry in terms of its dominance of U.S. economic activity is not what it once was. They also know that the industry is under siege from foreign competition and that a series of mistakes made over several decades by both management and labor have compounded the predicament.
But the U.S. economy for better or worse, now stands on service and finance, as opposed to manufacturing legs."
I don't know for sure, but I am very afraid that Wall Streeters are "Talking their Book" on large cap recovery.
OG
While I have no doubt they will come back I am no bull today. Hopefully I have been clear about this.
http://www.gurufocus.com/forum/read.php?1,1503
Bill Miller seems to agree which puts Roger in pretty good company.
KL
Think I'm with OG on this one. Sure it could be time for large cap - Bill Miller could be right - but there are many cycles and there is nothing like a time when impending change seems near that a larger truth emerges: Anything could happen.
Those who think it's time for large caps are welcome, go ahead. For myself there are simply too many possibilities. I've sold overweight positions in metals and oil into last week’s strength and am no longer overweight anything except cash and equivalents; not entirely out of other financial assets mind you - equities, bonds, REITs, commodities futures, etc. - just relatively light (for all I know the current scenario could run a few more years but I never could predict the future with any accuracy so to h*ll with it).
Never mind what we have to do to sleep at night; capital preservation is sine qua non.
Gross is a bond trader. Let's get that straight. He is comming off the biggest bull market for bonds in a long time. from 1982 until last month.
If one believes that you HAVE to be in a declining rate inviornment for stocks to go up....then you are going to be a bear for a long while.
GM...the GM story is a great one. But the US is no longer an industrial economy, we are a service economy. I'm out of GM.
Bull markets make everyone seem like a super star portfolio manager. If one is waiting until it's all clear to jump in...well, those days might be over. remember when you could buy KO and double your money yearly? SuperStockPicker! Then, you just bought INTC, CSCO, and MSFT....brilliant.
So, what is the trend now? What is moving?
Materials
Energy
Emerging Markets
Foreign Markets
Small Caps
But, all I ever hear is how these are dangerously high---stay away!
Guys, something is always going up. There is always a trend upward in sometihng ( except during that one period sometime in 2002 ).
Bulls are positive people.
Be a Bull in some stock, sector, or in your ability to find one going UP.
g
Thanks George, I needed that. More seriously, I don't see much right now that has the kind of risk/reward profile I prefer so more cash than usual and a pause to look around won't hurt, so long as that pause doesn't turn into chronic indecision or paralysis (been here before and it won't).
Roger,
You commented "At times you will favor one over the other and you will be right on that call sometimes and wrong other times" in the discussion of large caps vs small caps. I have a basic question to ask you...do you shift your stock weightings between large and small caps depending on which you think you'll be seeing the greatest performance in the near future or hold your weightings through "hell and high water"?
Thanks, Ron
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