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Published: February 5, 2010
The vast majority of investors regret not
having bought Wal-Mart (NYSE: WMT) or Microsoft (Nasdaq:
MSFT) 20 years ago, long before they became the behemoths
they are today. Consider this, though: Many investors in 20
years from now will probably look back at the opportunities
available in today's market with a similar sense of regret.
Without a doubt, the giants of tomorrow are out there right now
-- and there is still time to act.
Of course, finding future leaders is never easy. In all
likelihood, the companies that will deliver the biggest gains
over the next 20 years are probably quite small today.
This is because stock prices are a derivative of earnings
growth. It stands to reason that a small company with $10
million in earnings can double or triple that figure far quicker
and easier than a corporate giant with $10 billion in earnings
-- richly rewarding its shareholders in the process.
Long-term performance numbers bear this
out:
During the past 10 years, small-cap companies have outpaced
their large-cap counterparts. In fact, the Russell 2000 Index
has delivered an impressive +46.6% more than the S&P 500.
Meanwhile, over the same time frame, value stocks have soundly
outperformed growth stocks.
At the confluence of those trends, the small-cap value sector
has been one of the single best performing asset classes.
Of course, markets are cyclical, and anything can happen over
short periods of time. Therefore, long-term performance figures
tend to have far more predictive power.
On that front, small-cap value stocks still look superior ...
As the table shows, small-cap value stocks averaged +14.8%
annual clip during the 33 year period, according to a recent
study. Yet during the same time period, large-cap value stocks
averaged only a +10.8% annual gain.
Over the long haul, that difference can add up to a substantial
amount of money.
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Based on the 20-year time period shown above, investors in
small-cap value stocks would have earned an additional $80,299
when compared to investors who placed their money in large-cap
value stocks. And over an 40-year time period, that figure jumps
to $1,893,707 in additional returns!
It seems pretty clear: if you want to maximize returns over the
long haul, then you need to have exposure to small-cap value
stocks.
Good Investing!
-- Nathan Slaughter
Editor
StreetAuthority Market Advisor
The ETF Authority
Half-Priced Stocks
P.S. -- You don't make money in the market by taking risks...
you make money by minimizing them. That's why I like to skew my
investments toward a set of "rules" that have proven to beat the
market over and over again. Like the "small-cap value" vs.
"large-cap value" rule I explained above. You might prefer a
different set of rules for your investing style. If you're an
income investor, you should definitely consider following
these eight "no-brainer" rules. One man is already
collecting about $3,000 a month in dividends this way. |
