Over the past few days, the New Highs have exceeded New Lows on both the big board and the Naz, sometimes by a few hundreds. (e.g. Feb 1, NYSE 238 New Highs vs. 6 New Lows; Naz 106 NHs vs. 17 NLs).
So then, why all the jitters among investors? I think it is primarily because of the following reasons :
1. Many investors that invest in individual stocks are heavily into large-cap tech stocks.
2. Many of the 401(K) plans have a "wide selection" of mutual funds that are essentially clones of the large-cap S&P 500 which in turn is dominated by large-cap tech stocks. Case in point -- Fidelity Magellan, Blue Chip Growth, Growth Company, Contrafund are all essentially the same as the S&P 500 with a little tweak here and there.
3. Even when the investors do go for non-S&P 500 stocks, they end up chasing overvalued small-cap tech stocks (the "next" Microsofts, Ciscos and Intels of the world). Most of those invariably crash and burn. The small-cap growth index fund (VISGX) which typically houses such companies, has managed a measly gain of about 3% over the last 1 year.
4. Investors have completely overlooked small-cap value stocks, sometimes by choice and sometimes because their 401(K)s offer no funds in that category. In stark contrast to VISGX, the small-cap value index fund (VISVX) has gained about 39% over the last 1 year.
I think the small-cap value sector is the place to be over the next 5 years which are likely to be highly inflationary, and that over the 2001-05 time frame, I think VISVX will handily beat not only INTC, CSCO and MSFT but also funds like VISGX and the S&P 500 index and even the total-stock market index fund VTSMX. |
