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Hi Dave, thanks for the info.
By plotting the Relative Strength Comparative indicator for the major
markets, I can see the effect that Jerry is talking about. However,
my data for the Russell 2000 only goes back to 1988. Does anyone know
of a reference that explores this back to 1960 or earlier? What's the
average percentage increase? Where can I find Eisen's stuff?
I agree that your "Gut explanation" (great term!) is based more on
stock price than on capitalization. Is it true that average price of
a small cap stock is less that the average price of a large cap? This
seems like it is probably true, but I don't have a way to confirm that
it is.
There's no doubt the Small Caps are underperforming right now and I'm
sure that the "flight to quality" is a big part of it.
For anyone who's interested, here is what my Relative Strength chart
shows:
January's Performance relative to S&P500
Dow NASDAQ Russell 2000
1988 Up Up Up
1989 Down Up Up
1990 Up Up Up
1991 Down Up Up
1992 Up Up Up
1993 Up Down Down
1994 Down Up Up
1995 Up Up Up
1996 Up Up Up
1997 Up Down Down
1998* Down Up Down
* thru Jan 29th
You can see the chart for yourself at
http://coolhistory.com/ChipsCharts/MarketComp.gif
Thanks,
Chip
---Dave Zawicki <JohnZGalt@xxxxxxxxxxxxxxxx> wrote:
>
> > This is the first time I've seen someone refer to a Small Cap/Large
> > Cap effect. I'm very interested in learning more - can you point me
> > to a reference?
>
> Chip,
>
> I don't know if I can give you an exact reference, but you might
try finding
> some stuff written by Harvey Eisen (Prudential?) in December which
may point the
> way.
>
> If you are looking for some gut confirmation think of it this way.
If IBM has
> a terrible year and we get to December maybe it will sell off 15
points. Philip
> Morris the same way only this time 8 points. These are on the order
of 15-20%
> of the stock price. Anything more and you are dealing with
something else.
>
> Now think about that hot biotech stock you bought last summer at
$16 and is now
> trading at $5. You want to capture that tax loss, so you dump it.
Thin market,
> oversupply and lack of buyers might drive this stocks down to $2
before the
> carnage is over.
>
> Suppose you buy these beat up stocks and they return to the
previous levels.
> IBM and MO went up 20-30% on a recovery bounce, but that little
biotech would
> have to more than double. Even if you get a partial bounce, the
small stocks
> will outperform.
>
> This is of course a function of stock price, but I think my
examples are in the
> general trend.
>
> Jerry wrote that it isn't happening this year and he is absolutely
correct
> (want to see my list of beat up biotechs?). People are paying for
"safety" and
> "predictability" in the face of the dire news coming out of Asia and
the scandal
> out of Washington.
>
> If you have access to indexes, take a look at the large cap drug
stocks, or the
> large regional bank stocks (not the money centers). These are
perceived as
> "safe" and performing well. My holding in MRK has gone from a
November low in
> the mid 80's to 119 yesterday. 40% in 3 months on Merck??? It wasn't
> undervalued to start with, now the flow of funds into "safe" stocks
is pushing
> it higher.
>
> By the way my theoretical "blood in the streets portfolio" is up
almost 50%
> since 12/31/98. 1/2 Thai Fund and 1/2 Korea Fund. I wish I had the
guts to
> pull the trigger on that one. ;-)
>
> ----
> Dave
>
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