Hi, I'm Jimmy, in this video we're looking at which investments of better small cap,
mid-cap or large cap companies. Then to the end of the video, we're going to look at some
potential ways we can use the information that we get out of this video to build a better
portfolio. Okay. So let's quickly define how we're breaking up these categories. So for
the small cap companies, I'm using the iShares small cap ETF ticker symbol IJR to represent
small cap companies. And just so we're on the same page. Cap is simply short for capitalization.
So a small cap company is a company that has a smaller market value on the stock market.
Now I don't mean the stock price itself. We're looking at the total value of the whole company.
Okay. So IJR has companies worth about six billion dollars and down. Now, I only saw
two of the five or six hundred companies in the ETF worth about 6 six billion dollars.
The rest were generally worth 4 billion in something dollars and down. Now I'm spelling
this out because there's no hard and fast rule as to what defines a small, mid or large
cap company. So that's what we're focusing with them. Then we have mid-cap companies
that were using the iShares mid-cap ETF ticker symbol IWR now most of their companies are
somewhere between 5 and 30 billion dollar market caps. Now they have some companies
that are below that, but broadly speaking, most of them fall in that range. Okay, simple
enough. Now for the large cap ETF we use the iShares, large cap ETF ticker symbol JKD.
As we could see, I stuck with the iShares family here. Now the large cap companies ranging
anywhere from Apple, which is the largest company worth over a trillion dollars, and
they fall all the way down to slightly less than 20 billion. Although a large percentage
of those companies, I think it's about a third of them are worth at least 100 billion dollars.
Okay. Now let's look at the results. So we look at the results for each of these three
ETF s through 2019 so far. Well, we can see that the large cap companies have significantly
outperformed and that probably makes a lot of sense when we think about how companies
like Apple have done so well in the recent year when we skip over to 2018. Well, we can
see that 2018 was a very good year for stocks in general. Since all these returns are negative
returns, then in 2017. Well, it seems as the stocks at best performed with the largest
companies. But in 2016, there we saw that small cap stocks performed better, almost
double what both mid and large cap stocks did. Okay. Now let's switch this chart to
a chart of all of the years going back to 2006 for each of these three tests. Now we
can see what I was looking at with this as I was trying to find some sort of pattern
that made a lot of sense. For example, if small cap companies did well one year, they
didn't do well the next year or vise versa. And there was no consistent pattern that seemed
to be true. Each time they broadly seemed to move well with each other. But overall,
I couldn't really find a pattern splitting these companies up. But when we add the averages
for each of these companies going back the past 10 years, well, we can see that large
cap led the way. Then small cap companies came in second and then mid-cap companies
came in third place as far as average annual performance. Now, when I was doing this research,
I deliberately went back to before the Great Recession because I wanted to see how each
of these groups did in the run up to a market crash and an eventual market crash. And then
the recovery now overall looks like there's not too much of a difference between each
of them. But here's where I think it gets a bit more interesting going back to 2016.
Just as an example where we can see that small cap stocks perform the best. But look at what
happens when we switch to the top 10 performing stocks within this ETF for that time period.
And what's interesting to me is look at how high these returns are. And then when we switch
over to mid-cap stocks, well, their top 10 did good, but we can see that they didn't
do quite as well as those small cap stocks did. Then when we switch to the large cap
companies or we can see that the large cap companies, although they had solid performance,
they didn't put up anywhere near as impressive performance as the top 10 companies from the
small cap group. When we switch over to 2017, well, we could see a very similar story. Small
cap stocks had the best performing individual names within the group. Mid-cap stocks did
good, although not as good as small cap stocks. Large cap stocks did respectable but not great,
especially compared to the small cap stocks. 2018. Once again, same thing. Small cap mid-cap
did decent pretty good, but large cap, although decent, didn't do nearly as well. Same is
true. Year to date for the 20 19 stocks. Now I bring this up because I think that this
actually makes a lot of sense. If we think about it clearly would be easier to double
or triple or quadruple a billion dollar company than it is to triple a a 100 billion dollar
company. So. All this mean for investment portfolio? Well, let's start with the key
question. What's better, small cap stocks, mid-cap stocks or large cap stocks? Well,
when we look at this chart, we can see that on average, large cap stocks seem to perform
better. So if we're buying a broad basket of stocks, staying diversified and sticking
with large cap companies makes the most sense. On average, they've done the best. And assuming
that we believe history will at least somewhat repeat itself. It makes sense to stick with
this sort of mantra of investing. But now let's imagine that we want to get bigger returns
than the averages. Well, we can go with the large cap winners from last year. They're
doing quite well, but rarely are we going to see our money double in a single year or
triple. If we're owning large cap companies. But if we switch over to small cap stocks,
well, here we can see consistently huge returns as we jump from year to year. Now, a while
back, I read a very popular book called The Rich Tag Rich Dad, Poor Dad, by Robert Kiyosaki.
And one of the things that struck me about that book, one of the pieces of advice that
the author had is that he said that he liked to invest in small cap stocks. Now, at the
time, I wasn't really focused on that. I've always been a I've always paid more attention
to large cap names. They're easier to track. There's more information out there on them.
There's more research on them. But now I realize what he's talking about. So if we do our own
research and if we really want to swing for a home run. Well, I think the key takeaway
here is that there seems to be way more opportunities in small cap stocks, or at least there has
been historically more opportunities in the small cap space. Of the key to this actually
working is doing our own research because as we could imagine, the risk of a small cap
company is also much, much higher than that of a large, stable company that's worth over
100 billion dollars. So this goes back to the old saying of higher risk, high reward.
Now, if you're not really a half percent sure about how to research a company, well, actually
did a video where I break it out into eight steps. You can find a link right here and
I'll link in the description below. So that could be a good next video to watch. If you're
interested in researching more companies and potentially getting a higher return. So thank
you for staying with me all the way into the video. I really appreciate it. I'll see in
the next video.