Maybe we have to wait a bit longer? Just some food
for thought.
See article from Forbes "Bet against Buffett? Not me"
by Kenneth L. Fisher.
--Chun
"
IF YOU ARE waiting for small stocks to have
their day, I have bad news for you: You have
a long wait. And I have further news: You
had better revise your definition of what
constitutes a large stock versus a small
stock.
For several years I have urged readers to
stick with big-cap stocks. That has been
good advice. For example, my Dec. 30, 1996
column said that the best U.S. stocks to own
are those "from among the 50 very largest."
I expect this trend will continue.
As of this writing there are just 35 stocks
with a market capitalization (price times
shares outstanding) bigger than that of the
S&P 500. They are listed in the table. I
call them super caps. You may think of
outfits with market caps of $10 billion as
big, but my firm's research shows that even
such biggies tend to perform more like small
caps than super caps for years at a crack.
So, forget small cap versus big cap. Think
instead of super caps versus everything
else.
Look at the S&P 500 without the super caps.
My studies show that when small beats big or
vice versa for multiyear spans as is
happening now, these 465 perform more like
small stocks than large stocks. Take 1996:
The S&P 500's ten largest stocks, super caps
all, returned 29.5%, versus the S&P 500's
23%. If you owned all 35 super caps last
year, equal-weighted, you beat the S&P 500
by 1.1%. The S&P 500's 465 smallest stocks
returned 17.4%. And the small-cap Russell
2000 came in at 16.5%. In short, the super
caps beat big caps, most of which acted like
small caps.
Don't sweat a billion bucks or so. Warren
Buffett's bets on Gillette and McDonald's,
which would be numbers 40 and 41 on the list
at $33 billion, are both big enough to act
super. But during these periods $10 billion-
size stocks act about 70% like small stocks;
stocks with caps of $5 billion act about 85%
like the smallest stocks.
Based on my cycle analysis, I expect big to
keep beating small until the bottom of the
next bear market. And I expect the super
caps will keep beating the market. As the
bull market turns bearish, the super caps
will drop, but less drastically than all
smaller stocks.
No, not forever. Only until we have
completed a full bull/bear market cycle.
From 1974 until 1982 small caps were the
stars. They will be again. But that time is
a full bear market away. Until then,
smallness hurts.
So, are the super caps well represented in
your portfolio? If not, you are unlikely to
beat, or even match, the market. Note that
Warren Buffett's Berkshire Hathaway is a
super cap, and owns primarily super caps or
near super caps including: Coca-Cola,
Disney, Gillette, McDonald's and American
Express. Do you want to bet against Buffett?
-------------------------------------------------------
The super capsthe stocks bigger than the market
When big beats small, only super big beats the market.
Company Market cap Recent
($bil) price
General Electric $163.2 99 1/4
Coca-Cola 138.3 55 3/4
Exxon 133.8 107 3/4
Intel 114.2 139 1/8
Microsoft 109.8 91 2/3
Merck 101.5 84 1/4
Philip Morris 92.7 114 3/8
Procter & Gamble 78.1 115
Intl Business Machines 71.0 137 1/4
Johnson & Johnson 70.5 52 7/8
Wal-Mart Stores 63.9 27 7/8
EI du Pont de Nemours 59.6 106
Bristol-Myers Squibb 59.1 59
AT&T 56.5 34 7/8
American International Group 55.1 117 3/8
Pfizer 54.2 84 1/8
Hewlett-Packard 54.1 53 1/4
Mobil 51.4 130 5/8
PepsiCo 50.5 32 3/8
Citicorp 50.1 108 1/4
Walt Disney 49.2 72 7/8
Chevron 45.5 69 3/4
Eli Lilly 45.4 82 1/4
GTE 44.9 46 5/8
Berkshire Hathaway 43.8 36,200
Abbott Laboratories 43.5 56 1/8
Amoco 43.1 86 5/8
General Motors 41.9 55 3/8
BellSouth 41.7 42 1/8
Chase Manhattan 41.3 93 7/8
Fannie Mae 38.3 36 1/8
American Home Products 38.3 60
Ford Motor 37.3 31 3/8
BankAmerica 35.8 100 7/8
Motorola 35.8 60 3/8
Figures as of Mar. 31.
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" |
