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 Never complain about what you permit.
 Anthony de Mello, Author


It’s July and time to review market behavior in the first half of the year. I will do that here, but a lot of other things are changing that I’d like to discuss with you – changes that you may or may not want to complain about. As the quote above states, permission is approval.

In addition to my customary market review, this commentary also covers some changes that have occurred recently:

  • The effects of the credit crisis on financial stocks and their styles. Do you view financial stocks as value or growth?
  • The emerging interest in “core” investing. Are you using core in your portfolios? Which “flavor”?
  • The congressional buck-passing to the SEC of the broker-fiduciary standard. Are you a fiduciary or a salesman?
  • The SEC’s unanimous approval of a proposal for target date funds. What does it mean?

I’d really like to turn this discussion into a dialogue with you. Please let me know what you think.

Style Returns

Insights into the first half of 2010

The first half of 2010 has been an overall disappointment, with both domestic and foreign markets losing value, and almost no place to hide.

As the chart on the right shows, large-cap US companies lost about 8% in the first half of 2010. By contrast, mid- and small-sized companies lost only 2% and 1% respectively. Smaller has been better, which is somewhat surprising given the current angst about the economy; you’d think investors would feel safer with larger companies, and those companies would attract more capital. The fact is that smaller companies have now outperformed large for the past 18 months. Smaller companies led the 2009 rally.

What do you think is the cause of this smaller company dominance? Here’s my belief. Investors perceive that larger companies are more exposed to looming pitfalls, like tax and inflation increases; “too big to fail” is no longer the order of the day.  In this environment, revenue, not size, is king; more on this topic in the discussion below on financials.