Is it time to add small cap and value to your portfolio?

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Manage episode 246150924 series 30352
By Paul Merriman. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

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This recent Marketwatch article, "This strategy beats a total stock market fund and gives you more diversification," attracted almost 85,000 readers in its first week, so Paul decided to address some topics and questions submitted by readers of the article. These include:

  • The use of individual stocks vs. mutual funds or ETFs
  • The risk of small-cap value compared to the S&P 500
  • The comparison of return from a cap-weighted and equal-weighted S&P 500 portfolio
  • The impact of dividends in the index returns
  • The use of mid-cap value stocks, along with large- and small-cap value
  • The possibility that small-cap value is starting to out perform growth
  • How long it took the market to recover its huge losses from the 1929 peak price
  • The importance of dividends to the long-term returns of the equity asset class

In the discussion of individual company stock vs. diversified portfolio, Paul talks about an article by Jonathon Clements that references the Bessembinder study, “Do Stocks Out-Perform T Bills?" Clements mentions several outcomes that should make investors question the likelihood of future star performance from the recent big winners in the 10-year bull market. Clements writes, “To get a sense for corporate America’s constant upheaval, check out the American Business History Center’s ranking of the largest U.S. companies, based on revenues. Hit the replay button at the top of the page and you’ll see how, over an astonishingly short 24 years, General Motors and Ford Motor were toppled from the top of the ranking, while Apple, Berkshire Hathaway and Amazon soared to claim three of the top five spots.”

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