Understanding Just How Small Small-Caps Are

Earlier I touched on the break in small-cap stocks which hasn’t been matched (yet) by a drop in large-cap stocks. There’s an important aspect of small-cap stocks that’s difficult to fully explain, but it’s how truly small small-caps are. The overall value of the stock market is greatly influenced by a small number of very, very, very large companies. Everyone else is puny by comparison.

The Russell 3000 is an index of 3,000 of the largest stocks on Wall Street. Russell further divides that index into the Russell 1000 which is the 1,000 largest in the Russell 3000, and the Russell 2000 which is 2,000 smallest in the Russell 3000. So there’s no overlap between the Russell 1000 and Russell 2000, and combined they make up the Russell 3000.

Now look at this long-term of the Russell 1000 and Russell 3000. Yes, there are indeed two separate lines there but it’s nearly impossible to tell.

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Even though the Russell 1000 contains one-third the number of stocks of the Russell 3000, the performance is quite nearly identical.

Posted by on May 12th, 2014 at 2:57 pm


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