ppnewbie wrote: ↑Sun Oct 15, 2023 9:03 pm
Did anyone go to this session?
I could not, but the author posted an article in the AAII Newsletter, plain text excerpt below. It backs up the Golden Butterfly results. There was much more written.
Here is the entire journal for that month from my Google Drive.
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Small cap value article AAII journal October 2023
Small-Cap Value Is the Best Choice for Equity Diversication
By Paul Merriman
Any long-term portfolio anchored by the S&P 500 can benefit from the addition of small-cap value stocks.
Although there are more small-cap stocks in the total market index, the large-cap companies, with their higher individual values, make up the majority of the Wilshire 5000's total index value. Wilshire states the 747 large cap stocks comprise more than 91 percent of the Wilshire 5000 index value. The next 1,737 small-cap stocks are worth about 9 percent. The remaining roughly 2,500 micro-cap stocks are, despite being numerous, collectively worth less than 1 percent of the stock market value tracked by the index.
Small Cap Improves Upon S&P 500 Returns
Here’s what I’m suggesting: Assume your default bedrock equity investment is the familiar, comfortable S&P 500. Also assume that you would like to do better than that index over the long term and you’re willing to put a portion of your equities into another asset class. In that scenario, I think small-cap value is your best choice for diversification.
I can’t show you the future, but I can show the past.
Many investors believe small-cap value stocks are riskier than the S&P 500. Our analysis paints a different picture. We studied 53 years of returns from 1970 through 2022. We compared the S&P 500 alone to an equity portfolio split 50%/50% between the S&P 500 and small-cap value stocks. {that’s what Golden Butterfly does}
Here’s what we found:
» The two-fund combination had a compound annual growth rate of 12.2%, compared with 10.4% for the S&P 500 itself.
» In 11 of the 53 calendar years, the S&P 500 lost money; in three of those losing years, small-cap value stocks realized gains.
» In another five of those 11 years in which the S&P 500 lost money, the two-fund combination also lost money, but not as much as the S&P 500.
» In its 42 profitable years, the S&P 500 was up 18.7% on average; in those same years, the average gain for small-cap value was 21.3%.