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Over the last eighty years, small-cap stocks have been the best-performing size category of stocks. I got this data from Professor Ken French's Web site.

He divided the market into ten "size deciles." What's interesting is that it's almost perfectly rank-ordered--the largest stocks did the worst, the smallest did the best.

The data covers from mid-1926 through November 2006. Here's the annualized return by decile:

Lowest.....................13.588%
Third........................12.504%
Fourth......................12.371%
Fifth.........................12.128%
Second....................12.120%
Sixth........................12.015%
Seventh....................11.861%
Eight........................11.414%
Ninth........................10.950%
Biggest.....................9.703%

Here's the same chart, but I divided all deciles by the largest decile (which is the flat line).

You can see that small-cap outperformance is very cyclical with the last “up” cycle starting seven years ago.

Posted by edelfenbein at January 10, 2007 12:30 PM