Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Small-Cap Stocks Important Investing Trends 2009

Companies / Investing 2009 Dec 28, 2008 - 08:47 AM GMT

By: Investment_U

Companies

Best Financial Markets Analysis ArticleThis week we got confirmation that the U.S. economy contracted by 0.5% in the third quarter. And most economists expect the downturn to accelerate, with GDP checking in as low as negative 6% in the fourth quarter. Here's why I'm not concerned…

A more important trend is emerging. Remember, on November 19 I told you to consider going big, by going small with small caps. Well, the markets didn't leave much time for preparation.


In that short span, small caps jumped 6.38%, almost tripling the returns of large caps, based on the Russell 2000 and Russell 3000 indexes. Of course, it's too early to declare a full-blown rally. But we shouldn't be ignorant to the subtle shifts in market leadership.

Remember, the market's a forward-looking beast. And that means even in the darkest hours we need to be thinking about the next bull market… and positioning ourselves to profit.

The more I research and monitor the markets, the more convinced I become that the time for small cap stocks is upon us. In the next two columns, I'll do my best to convince you of the same.

Today, I'll focus on the why. Next week, I'll show you how to screen for the most potent opportunities, as well as provide a few specific recommendations.

Before we get to it…

Making Sure You're Ready To Buy Small Cap Stocks

Before I lay out the case for small cap stocks , we need to make sure you're ready to buy. After a brutal 2008, I fear many of you may have packed it in for the year. But sitting cash heavy right now is a big mistake…

First of all, two of the fastest-rising bull markets occurred in the 1930s. So don't kid yourself. Times are tough. The economy's in the tank. But this market, just like during the Great Depression, could turn on a dime, too.

That means if you're not positioned ahead of time, you're certain to miss out.

As Minneapolis investment research firm The Leuthold Group reveals, in the first year of every new bull market since 1900, the Dow jumped an average of 41%. Keep in mind, the average total bull market gain over the same period was 84%. In other words, bull markets are heavily front-loaded.

And Standard and Poor's agrees. They estimate most investors make back 82% of their bear market losses in the first year of a bull market.

Bottom line - being late to the next bull market comes with a big price tag. And I don't want you to pay it.

Why 2009 Will Be a Small-Cap Stock World After All

Now that you're primed, let me tell you why jumping into the deep-end and buying traditionally riskier small cap stocks is actually the smartest bet right now. I'll let the data, not my own personal convictions, do most of the talking…

  • Coming out of recessions, nothing beats small caps. Last month, the National Bureau of Economic Research (NBER) made it official. The U.S. economy is in a recession. No matter when we make the calculation (after one month, six months, one year, even three years) small cap stocks trounce their larger brethren coming out of slowdowns, according to the data crunchers at Old Mutual and Morningstar .

1945 - 2007 Small Cap Stocks vs. Large Cap Stocks After Recessions

  • Even if the economy doesn't recover in 2009, small cap stocks should shine. The latest from Citigroup Global Markets indicates small caps could care less about the underlying economy. Even in years of flat or negative GDP growth (up to 2%), small caps return an average of 44%.
  • One month can make a difference. Based on the 10 worst years for stocks since 1927, small caps jumped 18.17% in January alone. Meanwhile, large caps barely showed up for the much-heralded January effect . They only muster a 3.1% gain, on average, according to Cambria investments. I don't know about you, but the prospect of one-month double-digit gains, especially after this year's drubbing, excites me. The fact that they could come just weeks from now is even more tempting.

In the end, only time will tell if a small-cap rally is truly underway. By then it will be too late. I suggest you heed the data that keeps piling up in favor of small caps. I'm not saying you should invest in nothing but such stocks. But you should at least consider increasing your exposure.

Here's one last data point to chew on: Since 1926, Morgan Stanley found large caps return more, on average, when they trail small caps. When large caps lead the way they only return 7% per year on average. When small caps shine, large caps return 13% per year, on average.

Put more plainly, a small-cap rally is a win-win. Their strength brings our large-cap holdings along for the ride, too.

Next week, I'll provide more proof, detail my favorite ways to screen for small-cap investment opportunities and, in true holiday spirit, I'll also share my favorite recommendations headed into 2009. So stay tuned.

Good investing,

Lou Basenese

Editor's Note : So far this year, Lou's White Cap Index is up 135%. He just released the next five companies about to be added to it. And one of them is already up 87% over the last 47 days. Get exposure to the soaring White Cap Index today, with the White Cap Report .

Today's Investment U Crib Sheet

The financial industry traditionally uses small, mid and large caps to describe and classify companies. But as investments have become increasingly specific, so have the definitions. These have expanded to include nano, micro and mega caps.

Market Capitalizations

  • Nano Cap : Below $50 Million
  • Micro Cap : $50 Million to $300 Million
  • Small Cap : $300 Million to $2 Billion
  • Mid Cap : $2 Billion to $10 Billion
  • Large Cap : $10 Billion to $200 Billion
  • Mega Cap : More than $200 Billion

To calculate a company's capitalization, simply multiply the share price by the amount of shares it has. For example, a company with 10 million shares, trading at $50, has a capitalization of $500 million - making it a small cap. You can find this information through Google Finance or any other stock quote site.

As Lou mentioned above, small caps have a history of being some of the first stocks to move upward in a new bull market. Their size enables them to react, make changes and return to profitability faster than a large company can.

Imagine a large- or mega-cap company as an oil tanker and a small cap as a speedboat. You can picture how easy it would be for the small boat to change direction, and how hard it would be for big corporations.

If you're trying to figure out when the market might begin to recover, there's another indicator Lou recently gave us. To find out why the Baltic Dry Index is the only indicator you should be looking at right now, check out Investment U Issue #884, The Baltic Dry Index : The Only Economic Indicator Worth Tracking Right Now.

Related Articles :

Article - Small-Cap Stocks: The Most Important Trend Headed into 2009

by Louis Basenese , Advisory Panelist, Investment U

http://www.investmentu.com

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules