Newspaper article THE JOURNAL RECORD

Small-Company Stocks May Offer Extra Christmas Bonus

Newspaper article THE JOURNAL RECORD

Small-Company Stocks May Offer Extra Christmas Bonus

Article excerpt

Investors in small-company stocks often enjoy the holidays a bit more than those who own the big-name stocks because Santa Claus seems to favor them.

Why this is so isn't fully understood, but it is well documented that the smaller companies have outperformed the big companies over the years, and that they do especially well from the last week of December into January.

G.W. Perritt, a small capitalization stocks scholar, finds that during the past 66 years the smaller stocks have returned an average of about 0.8 percent a month, February through December.

However, during January their returns average a 6.8 percent, or about five percentage points higher than the average large-cap returns. For the rest of the year the big and small stocks almost go toe to toe.

The January effect occurs year after year. During the past 66 years, small-caps have outperformed their large-cap cousins during 56 Januarys, or about 85 percent of the time.

Perritt became so interested in the long-term premium over larger stocks that he left the academic world, where he was a mathematics professor, to found Investment Horizons, a Chicago-based newsletter about small caps.

Since then he has dissected these companies to perhaps the full extent of a computer's ability, uncovering bushel baskets of precise, decimalized numbers, and drawing lessons in practical usage from them.

His definition also is precise. In selecting the stocks for analyses, he uses the New York Stock Exchange list for guidance, choosing as his standard the bottom 20 percent in terms of capitalization.

He then applies that standard _ now near a maximum of $120 million in annual sales _ to stocks on the list of American Stock Exchange and Nasdaq stocks.

Many of these stocks are "undiscovered" by large brokerage houses and popular gurus, and receive little publicity. …

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