Micro-Caps

There’s a lot to like in small-company stocks. I’m greatly indebted to Dr. Ken French of Dartmouth who keeps a terrific data library at his Web site. I downloaded some files and did a little research.

Over nearly eight decades, the smallest 10% of stocks—called micro-caps—have been the top-performing size category of all stocks. From mid-1927 to the end of 2004, micro-caps are up over 2,000,000%. That comes to 13.45% a year. The largest stocks have done the worst, up a measly 140,000% or 9.70% a year. Since the market’s low in 1932, micro-caps are up over 10,000,000%, or 17.35%. (If I had only known!)

The problem with micro-caps is that although the out-performance premium has been quite generous, it’s also been very volatile. Since July 1983, Micro-caps have underperformed the largest stocks. Micro-caps have had an amazing turnaround since March 1999. Since then, the small fries are up over 250%.

Posted by on September 9th, 2005 at 4:15 pm


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