versija spausdinimui
(0)
It is well known that small cap stocks outperform large cap stocks over long periods of time. This is explained by academics. Since small stocks have greater risk, they should have a greater return. What is not well known is that small cap value stocks greatly outperform everything (1).
I developed my Antigravity Theory in 1990. Part of this theory is that not only do companies with the highest growth rates disappoint, but they significantly underperform. However, at the turn of the year, optimism is rampant so there is a seasonal twist. Hope springs for bad performers each year until again they prove they are losers, miss forecasts, and disappoint. The superior performance of value is concentrated in smaller stocks. Any superior results for Large Cap stocks occur in January quarters or are immediately after a stock market decline.
Our research company ZPR Investment Research has a point in time database without bias on the 2000 largest US stocks each quarter since year end 1985. In our recent study (May, 2006), we had 164, 000 observations to test growth versus value. Besides the traditional price to book value (or book to market equity) academic measure, we formed two growth measures of analysts. For the long run forecast we used the consensus 5 year growth forecasted by analysts at the end of every quarter. To get a short run forecast we construct an “Advanced Growth Rate” that keeps a fixed 12 month rolling time horizon for analyst forecasts from the trailing 12 month actual earnings. We examined what happens when you buy the companies with the highest forecasted growth rate of earnings in the coming year or if you buy the companies with the lowest growth rate.
The study showed that the highest forecasts are subject to the biggest disappointment. The Small Cap Value contrarian hypothesis is upheld for superior performance for both long run and short run earnings growth forecasts. Only midcap stocks do not exhibit underperformance on the one year earnings forecast, so buying the stocks with the highest growth rates can be hazardous to your portfolio.
For example, ZPR 1000 Small Cap stock universe was up 879%, but those stocks with the lowest long run growth forecasts were up 1642%. Stocks with the highest growth rate forecasts greatly underperformed with only 161%.
To explain the substantial performance advantage of value versus growth and seemingly lower risk too, academics argue that this is due to “distressed” companies. They claim that winning value stocks have a lot of debt and therefore higher risk and should therefore have a higher return. We have completely demolished that argument by showing the enormous superior returns to “value” stocks without debt.
We found that small cap value stocks without debt did twice as well as other small cap value stocks with a 3134% return and highest growth of growth stocks did only 471% with the traditional price to book academic measure.
We have observed the success of small cap value stocks in stock markets of Canada, France, Lithuania and Thailand. In Lithuania, low price to book value stocks are up 1,531% since the second quarter of 1998 while the high price to book value stocks are up only 265% when the average stock is up 623% through the third quarter of 2006.
The conclusion is that one should buy small cap value stocks with no debt. Correspondingly, ZPR Investment Management since January 1, 1988 when it founded its fundamental Small Cap Value product (and swore off growth) has the best performance compared to every manager and mutual fund for which we can find measurements for the last 18¾ years: +1,682.79% size adjusted net of fees (1940% equal weighted).
In Lithuania we have the ZPR US Small Cap Value mutual fund offered by Hansabank. We invite you to join us on our quest for the best performance! Contact: (8-5)2747016 or visit our websites: www.zprim.com; www.zprussmallcap.com; www.ipv.lt
------
(1)
The latest SBBI; Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates using CRSP data (University of Chicago Center for Research in Security Prices) gives the performance of $1 invested at year end 1927 through 2005 as
Large Cap Growth $883
Large Value Stocks $6,328
Small Growth Stocks $1,228
Small Value Stocks $45,144
Since 1969, the annualised return of Small Cap Value is 15.30% vs only 9.20% for small cap growth.
I developed my Antigravity Theory in 1990. Part of this theory is that not only do companies with the highest growth rates disappoint, but they significantly underperform. However, at the turn of the year, optimism is rampant so there is a seasonal twist. Hope springs for bad performers each year until again they prove they are losers, miss forecasts, and disappoint. The superior performance of value is concentrated in smaller stocks. Any superior results for Large Cap stocks occur in January quarters or are immediately after a stock market decline.
Our research company ZPR Investment Research has a point in time database without bias on the 2000 largest US stocks each quarter since year end 1985. In our recent study (May, 2006), we had 164, 000 observations to test growth versus value. Besides the traditional price to book value (or book to market equity) academic measure, we formed two growth measures of analysts. For the long run forecast we used the consensus 5 year growth forecasted by analysts at the end of every quarter. To get a short run forecast we construct an “Advanced Growth Rate” that keeps a fixed 12 month rolling time horizon for analyst forecasts from the trailing 12 month actual earnings. We examined what happens when you buy the companies with the highest forecasted growth rate of earnings in the coming year or if you buy the companies with the lowest growth rate.
The study showed that the highest forecasts are subject to the biggest disappointment. The Small Cap Value contrarian hypothesis is upheld for superior performance for both long run and short run earnings growth forecasts. Only midcap stocks do not exhibit underperformance on the one year earnings forecast, so buying the stocks with the highest growth rates can be hazardous to your portfolio.
For example, ZPR 1000 Small Cap stock universe was up 879%, but those stocks with the lowest long run growth forecasts were up 1642%. Stocks with the highest growth rate forecasts greatly underperformed with only 161%.
To explain the substantial performance advantage of value versus growth and seemingly lower risk too, academics argue that this is due to “distressed” companies. They claim that winning value stocks have a lot of debt and therefore higher risk and should therefore have a higher return. We have completely demolished that argument by showing the enormous superior returns to “value” stocks without debt.
We found that small cap value stocks without debt did twice as well as other small cap value stocks with a 3134% return and highest growth of growth stocks did only 471% with the traditional price to book academic measure.
We have observed the success of small cap value stocks in stock markets of Canada, France, Lithuania and Thailand. In Lithuania, low price to book value stocks are up 1,531% since the second quarter of 1998 while the high price to book value stocks are up only 265% when the average stock is up 623% through the third quarter of 2006.
The conclusion is that one should buy small cap value stocks with no debt. Correspondingly, ZPR Investment Management since January 1, 1988 when it founded its fundamental Small Cap Value product (and swore off growth) has the best performance compared to every manager and mutual fund for which we can find measurements for the last 18¾ years: +1,682.79% size adjusted net of fees (1940% equal weighted).
In Lithuania we have the ZPR US Small Cap Value mutual fund offered by Hansabank. We invite you to join us on our quest for the best performance! Contact: (8-5)2747016 or visit our websites: www.zprim.com; www.zprussmallcap.com; www.ipv.lt
------
(1)
The latest SBBI; Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates using CRSP data (University of Chicago Center for Research in Security Prices) gives the performance of $1 invested at year end 1927 through 2005 as
Large Cap Growth $883
Large Value Stocks $6,328
Small Growth Stocks $1,228
Small Value Stocks $45,144
Since 1969, the annualised return of Small Cap Value is 15.30% vs only 9.20% for small cap growth.