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jose.bailen@gmail.com
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 Posted: Sat Mar 24, 2007 3:02 am Post subject: Re: Small caps finally about to fizzle? |
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On Mar 23, 9:39 pm, "David" <d...@wilkinson6337.freeserve.co.uk>
wrote:
| Quote: |
On Mar 23, 7:36 pm, "jose.bai...@gmail.com" <jose.bai...@gmail.com
wrote:
On Mar 23, 4:13 pm, "David" <d...@wilkinson6337.freeserve.co.uk
wrote:
On Mar 23, 2:34 pm, Hank Gillette <hankgille...@yahoo.com> wrote:> In article <1174648171.823959.43...@b75g2000hsg.googlegroups.com>,
"David" <d...@wilkinson6337.freeserve.co.uk> wrote:
If you analyse any historical period with enough size/style choices,
say all of the 12 combinations of Size (Large-cap, mid-cap, small-cap,
microcap) with Growth, Value and blend then one of them is bound to
have been better than the others. It does not necessarilly mean
anything. Unless there is a logical relationship between the excess
returns and the apparently favoured style/size combination then it may
be no more than coincidence.
Take any 11-year period since 1927, and a representative portfolio of
each one of the 6 investment styles -small and large X stocks with
30% of the lowest book-to-market ratio (growth stocks), stocks with
30% of the highest book-to-market ratio (value stocks), rest of
stocks (blend). The representative small cap value stocks portfolio
outperformed the representative large cap blend portfolio (market
benchmark) EACH one of these 11-year periods.
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| Quote: |
No. Try 1989-1999, an 11-year period.
"Russell 2000 Value" cumulative factor = 3.637 = 12.5% p.a. compound
average.
"S&P500" cumulative = 7.023 = 19.4% p.a. compound average
|
Russell 2000 is an index, not a representative portfolio. The Fama and
French database -which is much more complete than any index, it
comprises all stocks publicly traded in the US market (CRSP data)-
shows hat a high Book-to-Market portfolio of small companies had an
average return of 18 percent a year during 1989-1999, while the big
companies benchmark (5th column in the table below) had an average
return of 16.8 percent a year. By the way, the best performance during
the period was that of large growth companies (low book-to-market
ratios column of the "Big" columns), that is, mostly dot.coms and
tech stocks. We all know what happened after 2000 with these tech
stocks: the Nasdaq (an index of mostly these growth stocks) is still
at about one-half of its peak level in February 2000.
Average Value Weighted Returns -- Annual
Small Big
Low BtM 2 High BtM Low 2 High
1989 19.63 17.97 16.46 36.2 25.36 29.33
1990 -18.7 -17.52 -23.57 1.14 -5.52 -13.49
1991 53.62 46.63 40.64 43.04 22.18 27.54
1992 4.65 22.53 35.19 6.31 9.77 23.53
1993 10.61 20.29 27.2 0.85 16.9 22.31
1994 -6.7 0.24 0.15 2.6 1.01 -5.71
1995 28.8 28.37 32.74 37.75 38.63 36.57
1996 9.28 22.43 24.07 22.58 25.53 14.67
1997 10.01 31.73 38.4 30.65 37.08 27.01
1998 -1.49 -5.58 -1.36 39.47 7.51 20.3
1999 46.6 21.71 7.75 26.79 5.82 -0.69
Average 14.2 17.2 18.0 22.5 16.8 16.5 |
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jose.bailen@gmail.com
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| Posted: Sat Mar 24, 2007 3:59 am Post subject: Re: Small caps finally about to fizzle? |
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On Mar 23, 8:36 pm, "jose.bai...@gmail.com" <jose.bai...@gmail.com>
wrote:
| Quote: |
TARO didn't go bust, it got de-listed in the NYSE and it is traded
now OTC. That's the latest quote of the stock:http://www.pinksheets.com/quote/quote.jsp?symbol=TAROF. To be fair,
another stock in my microcap portfolio, HDNG, has gone up by almost
70% since October (that way you would have the worst and best
performers of my microcap value portfolio).
|
I stand corrected. Just checked my Fidelity portfolio, and Hardinge
(HDNG) has gone up by 102.95% since I bought it. TAROF (my worst
performer) has gone down by -36.58%.. With dividends included, the 5-
month rate of return of my 35-stock portfolio has been 4.4 percent. |
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David
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| Posted: Sun Mar 25, 2007 2:31 am Post subject: Re: Small caps finally about to fizzle? |
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On Mar 23, 10:02 pm, "jose.bai...@gmail.com" <jose.bai...@gmail.com>
wrote:
| Quote: |
On Mar 23, 9:39 pm, "David" <d...@wilkinson6337.freeserve.co.uk
wrote:
On Mar 23, 7:36 pm, "jose.bai...@gmail.com" <jose.bai...@gmail.com
wrote:
On Mar 23, 4:13 pm, "David" <d...@wilkinson6337.freeserve.co.uk
wrote:
On Mar 23, 2:34 pm, Hank Gillette <hankgille...@yahoo.com> wrote:> In article <1174648171.823959.43...@b75g2000hsg.googlegroups.com>,
"David" <d...@wilkinson6337.freeserve.co.uk> wrote:
If you analyse any historical period with enough size/style choices,
say all of the 12 combinations of Size (Large-cap, mid-cap, small-cap,
microcap) with Growth, Value and blend then one of them is bound to
have been better than the others. It does not necessarilly mean
anything. Unless there is a logical relationship between the excess
returns and the apparently favoured style/size combination then it may
be no more than coincidence.
Take any 11-year period since 1927, and a representative portfolio of
each one of the 6 investment styles -small and large X stocks with
30% of the lowest book-to-market ratio (growth stocks), stocks with
30% of the highest book-to-market ratio (value stocks), rest of
stocks (blend). The representative small cap value stocks portfolio
outperformed the representative large cap blend portfolio (market
benchmark) EACH one of these 11-year periods.
No. Try 1989-1999, an 11-year period.
"Russell 2000 Value" cumulative factor = 3.637 = 12.5% p.a. compound
average.
"S&P500" cumulative = 7.023 = 19.4% p.a. compound average
Russell 2000 is an index, not a representative portfolio. The Fama and
French database -which is much more complete than any index, it
comprises all stocks publicly traded in the US market (CRSP data)-
shows hat a high Book-to-Market portfolio of small companies had an
average return of 18 percent a year during 1989-1999, while the big
companies benchmark (5th column in the table below) had an average
return of 16.8 percent a year. By the way, the best performance during
the period was that of large growth companies (low book-to-market
ratios column of the "Big" columns), that is, mostly dot.coms and
tech stocks. We all know what happened after 2000 with these tech
stocks: the Nasdaq (an index of mostly these growth stocks) is still
at about one-half of its peak level in February 2000.
Average Value Weighted Returns -- Annual
Small Big
Low BtM 2 High BtM Low 2 High
1989 19.63 17.97 16.46 36.2 25.36 29.33
1990 -18.7 -17.52 -23.57 1.14 -5.52 -13.49
1991 53.62 46.63 40.64 43.04 22.18 27.54
1992 4.65 22.53 35.19 6.31 9.77 23.53
1993 10.61 20.29 27.2 0.85 16.9 22.31
1994 -6.7 0.24 0.15 2.6 1.01 -5.71
1995 28.8 28.37 32.74 37.75 38.63 36.57
1996 9.28 22.43 24.07 22.58 25.53 14.67
1997 10.01 31.73 38.4 30.65 37.08 27.01
1998 -1.49 -5.58 -1.36 39.47 7.51 20.3
1999 46.6 21.71 7.75 26.79 5.82 -0.69
Average 14.2 17.2 18.0 22.5 16.8 16.5- Hide quoted text -
- Show quoted text -
|
You said any 11-year period, so I picked one when the S&P500 trounced
small cap value, proving your statement wrong. But of course you now
claim that the Russell 2000 value index is the "wrong" small cap value
index. This is presumably because it represents all the small cap
value stocks that could actually be bought with reasonable spreads,
costs and liquidity by funds and individual investors. You prefer to
include the thousands of tiny stocks that are too small for any fund
to buy and only get traded on the third thursday of the month when it
is a full moon. No one ever bought the portfolios that F&F refer to or
actually made any money out of them. They are just an academic fantasy
of what might have happened, but didn't. You can't base real life
investments on such stuff.
Have a look at Bogle's new book "The little book of common sense
investing" for the way out of the academic trap you have fallen into,
before you lose too much. |
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jose.bailen@gmail.com
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| Posted: Sun Mar 25, 2007 5:08 am Post subject: Re: Small caps finally about to fizzle? |
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On Mar 24, 10:31 pm, "David" <d...@wilkinson6337.freeserve.co.uk>
wrote:
| Quote: |
You said any 11-year period, so I picked one when the S&P500 trounced
small cap value, proving your statement wrong. But of course you now
claim that the Russell 2000 value index is the "wrong" small cap value
index. This is presumably because it represents all the small cap
value stocks that could actually be bought with reasonable spreads,
costs and liquidity by funds and individual investors. You prefer to
include the thousands of tiny stocks that are too small for any fund
to buy and only get traded on the third thursday of the month when it
is a full moon. No one ever bought the portfolios that F&F refer to or
actually made any money out of them. They are just an academic fantasy
of what might have happened, but didn't. You can't base real life
investments on such stuff.
Have a look at Bogle's new book "The little book of common sense
investing" for the way out of the academic trap you have fallen into,
before you lose too much.
|
Really? Let's take a look at the ACTUAL returns of the DFA Small Cap
Value fund (Gene Fama is actually in the Board of DFA):
http://finance.yahoo.com/q/pm?s=DFSVX
Year DFSVX
2006 21.55
2005 7.79
2004 25.39
2003 59.40
2002 -9.27
2001 22.65
2000 9.01
1999 13.05
1998 -7.30
1997 30.75
Average return (last 5 yr period): 19.03%
last 10-yr period:17.30%
Both results are pretty consistent -and actually higher- with the
average long-term rate of return of small cap value stocks (12% in
real terms, or 15% in nominal terms) as obtained by Fama and French
in their database. |
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