When Nobel winner Eugene Fama studied the long-term performance of U.S. equities in the early 1990s, he found that stock returns had decreased with size and cost. The smallest, cheapest companies had provided higher investment returns than the biggest, costliest firms.
Though initially counter-intuitive to many – why wouldn’t you want to invest in the biggest and best companies? – it made sense. Large-growth stocks were safer economic choices, operating reliable businesses well-positioned to survive recessions. Thus, they were handsomely valued, at prices that limited their potential for future increases. Continue reading
