End Stock Racism, a Reminder from Zor

I must admit, I’ve been a bit if a Stock Racist lately.

As I am a fiduciary managing OPM (Other People’s Money) this should come as no surprise.  A casual glance at my top 20 equity positions would make you think that I was prejudiced against small companies, especially early-stage ones without earnings.  And to a certain extent, this is true.

My stock predilections are toward Large Cap Growth, Large Cap Value and my personal favorite pumpkin patch to pick from, Mid Cap Growth.  After ten years on The Street, I’ve come to appreciate the following about my three favorite areas of investment:

  • Large Cap Growth stocks can continue to grow for a long time (I mean, $IBM anyone?) and even offer small cap-like returns once in a while.  Take away the Y Axis on a chart of Apple ($AAPL) and the price action would make any microcap Chinese Biotech-Steel Mill investor very proud.
  • Large Cap Value stocks offer me the ability to add ballast to a portfolio without using fixed income.  But because bank stocks no longer offer any kind of ballast whatsoever and I view the tobacco industry as being in a secular decline, I’ve done much less individual stock-picking in this arena of late.  Rather, I’ve begun using a lot more fundamentally-weighted index ETFs (the Little Lebowski Dividend Achievers, man) for my value/dividend holdings, I really like how they quantitatively screen out the names with weaker or cut-down payouts for me.  Life is short, after all.
  • Mid Cap Growth is my thing.  I am not an expert across markets, but I am really good at picking the mid-sized growth stories that could one day become large.  I’ve done it with techs, health care, energy, financials, retailers and so many others again and again.

But putting all that aside, there is something to be said for owning a little rocket ship or two.  Sure, the man on TV dismisses them as “junk” but let’s keep in mind that in a well managed account there’s room for all classes.

My friend ZorTrades reminds us not to hate on these names as they are sometimes the standouts, the hottest game in town.  He’s taken a look at the best-performing stocks of the year so far and deduced the following:

  1. 9 out of the 10 stocks still have a market cap of less than 1 billion dollars, that puts them in the small cap category.
  2. All 10 stocks still trade under 30 dollars a share
  3. 7 out of the 10 still trade under 15 dollars a share
  4. 9 out of the 10 started the year under 15 dollars a share
  5. 8 out of the 10 are U.S based companies
  6. 6 out of the 10 are technology stocks
  7. 5 out of the 10 according to FINVIZ had negative EPS this year
  8. 7 out 10 have a negative RETURN ON EQUITY
  9. 8 out of the 10 have NEGATIVE PROFIT MARGINS
  10. None of them pay a dividend

With proper risk management, there’s no reason to be racist against small caps. In fact, some of my biggest winners (and yours also, I bet) during this two year rally have been stocks they’ve dismissed as “junk”.  My earlier roots in the business had me speculating on the little guys as a matter of course.  I’d enjoyed the victories but despised the failures much more – so this part of my repertoire has been de-emphasized for a long time.

Zor’s post reminded me that small cap movers should never be ignored entirely, especially in markets like these.



Read Also:

Hello Financial Television, I’m a Mid Cap!  (TRB)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. w88 commented on Sep 21

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  2. Eat Verts commented on Sep 22

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  3. full body love dolls commented on Sep 25

    … [Trackback]

    […] Here you can find 12854 additional Information to that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  4. 토토사이트 commented on Dec 10

    … [Trackback]

    […] Find More here on that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  5. influencer marketing program commented on Dec 12

    … [Trackback]

    […] There you can find 8770 more Info on that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  6. wannawatches.com commented on Dec 31

    … [Trackback]

    […] Read More here to that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  7. tangerine account online commented on Jan 16

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  8. Epson LQ-680 Pro manuals commented on Jan 22

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]

  9. rolex replica commented on Jan 23

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2011/02/13/end-stock-racism-a-reminder-from-zor/ […]