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Many Happy Returns
Small caps are cheap. Why do they keep getting cheaper!?
Oct 4, 2023
This podcast explores why small cap indices continue to get cheaper despite their attractive prices. It discusses the valuation difference between small caps and large caps, the outperformance of the S&P 600 over the Russell 2000, the challenges faced by small caps in funding costs and interest rates, the impact of profit margins and private equity on small caps, the growth limitations of large companies, and the changing importance of companies and the upper limit of company growth.
33:40
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Quick takeaways
- Small caps have been underperforming large caps for the past 20 years, except for a period up to 1999.
- Investing in small caps requires careful consideration of their unique characteristics and risks, but also offers opportunities for active managers to find bargains and benefit from potential inefficiencies.
Deep dives
Small caps struggling to gain momentum
Small cap indices have been underperforming large caps for the past 20 years, except for a period up to 1999. While small caps appear cheap by many measures, they come with their own challenges, including volatility and weak balance sheets. Factors like size and illiquidity can impact performance and valuations of small caps.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode