From Little Things Big Things Grow (Credit Suisse highlights small stocks' out-performance through time)



"From Little Things Big Things Grow" is a song by Australian singer/songwriters Paul Kelly and Kev Carmody that may have been about an indigenous protest movement but resonates with how we see investing.

The chart below, sourced from the Credit Suisse Global Investment Returns Yearbook 2018 (Summary Edition) is another reminder of the power of growth from a small base.

The authors relied on size-ranked US data from the Center for Research in Security Prices (CRSP) at the University of Chicago Booth School of Business.

The chart shows the long-term performance since 1926. Stocks were split into deciles, with large-caps defined as deciles 1–5, smallcaps as deciles 6–8, and micro-caps as deciles 9–10.

While a dollar invested in larger companies, with dividends reinvested, grew in value to $US5,767, a
similar investment in small-caps gave a terminal value almost seven times greater at $US38,842. Micro-cap stocks did best of all, with an end-2016 value of $US60.276.

The returns on large-cap stocks were an annualised 9.9%, while small- and micro-cap stocks delivered 12.2% and 12.7%, respectively.

The out-performance of smaller stocks is not consistent from year-to-year, however. During 1975–1983, small-caps raced ahead. If this period were omitted, large-caps would have beaten small-caps from 1926 to the late 1990s.


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