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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (70513)	9/28/2006 10:20:34 AM
From: J_Locke	Read Replies (1) \| Respond to of 110194

P/E on Russell 200 is 16.5 P/E on Russell Midcap is 18.6 P/E on Russell 2000 is 19.5 P/E on Russell Microcap is 20.0 Big caps also pay higher dividends. That's why the "smart" money likes big caps. russell.com

To: ild who wrote (70513)	9/28/2006 10:49:19 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

ild, let me preface this by saying that i MYSELF am not making an argument to buy large caps; i was simply offering an example of a bullish opinion from somebody who i think has probably been MUCH more successful at investing than Fleck has. as to their arguments, historically large caps have traded at a premium to small caps. the extreme was in the late 90s/2000, when small caps were dirt cheap and large caps were very expensive. that role has been reversed. btw, this argument for large caps is pretty common, or at least not uncommon--the guy at CI has also said he though large caps should outperform. it makes sense that large caps trade at a premium historically, since they are more successful companies and better able to weather financial storms than small caps. this means, perversely, that small caps should have a higher expected return. i.e., small caps, and small value in particular, are riskier than large growth in particular (the bulk of the SPX), and so in the long term investors will demand higher return as compensation for the higher risk. the only way you get higher returns is if you start out with cheaper valuations. that has been the historical case for small caps, and value. now, at least for small vs large, the relationship has been flipped so that investors are paying a PREMIUM for small caps, which is irrational. whether large caps do well on an absolute return basis i do not know, but i think it is highly likely that their relative performance will be better than small caps so that they revert to their historical relative valuations (large trading at a premium to small). the gist of Van Den Berg's argument is that this is a rare juncture where you can buy "quality" (as the word is used by Grantham) at a discount to crap. to use a bond analogy, the large/small situation today is as if you could get higher yields on US Treasurys than you could on like-maturity junk bonds.