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Large, Medium, or Small Cap Investments

This has been a historic stock market rally. And, all bull markets correct or crash in the end. With this bit of truth in mind we have been writing about how to deal with your investments before there are substantial corrections or even crashes of the stock and real estate markets. A good choice is to switch your investment focus from growth to value.

The unique financial conditions of the last several years have been ideal for high tech growth stocks, the FANG group especially. But, now that conditions are changing, growth stocks are overpriced and at risk for a major correction. The better choice for many investors is to move into value stocks and other investments. But, what is a value stock?

In the article we revisited the concept of intrinsic value and how to calculate it. But, if you want to move into different investments what do you pick? The value of an investment in this regard is its forward looking income stream. Here we might consider looking at large, medium, or small cap investments. How have they done as groups and how are they doing now? As a group large caps provided more profits than medium and small caps in the last decade and as a group they are less likely to generate similar gains compared to medium and small caps today.

Large Cap Stocks

The most commonly watched indexes are the S&P 500 and the Dow Jones Industrial Average. These are both collections of large cap stocks. The S&P 500 has come from its lowest of 683 in March of 2009 to 2785 right now. That has been a spectacular rise. But, in the last three months the index has come from 2664 with a dip to 2581 in February. The Dow Jones was at 6626 in March 2009 and is 25,250 right now. In the last 3 months it went up to 26,616 and fell to 23,860. The point being that large cap stocks may have run their course and may be due for more of a correction. At this moment both the Dow and the S&P 500 are down about half a percent on the day.

From their lows in 2009 the large cap stocks have come up more than fourfold and they have showed signs of correction in the last 1 to 3 months.

Medium Cap Stocks

The S&P 400 is a medium cap index. It bottomed out at 406 in March of 2009 and stands at 1952 right now. A month ago it stood at 1839. The index is up a fraction of a percent on the day. This group is up nearly fourfold since its lows. And as a group medium caps look stronger than large caps in the short term.

Small Cap Stocks

The S&P 600 is an index of small cap stocks. It stood at 225 in March of 2009 and stands at 975 today. In the last month it has risen from 911 to its current level. Small caps have come up fourfold since their lows and like the midcaps they are doing better than large caps in the short term.

Penny Stocks

Investing in penny stocks can be tricky. First there is the question of knowing what penny stocks to watch. We have also written that it is wise to beware of penny stocks if you are not willing to do your homework, pay attention and accept the risk. The issue with penny stocks is that you basically need inside information in order to pick the winners and then you typically need impeccable market timing to gain your profits.





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