I've seen this in many diversification articles - you should diversify by market cap (not only, ofc, but also).
This never made any sense to me. Why? Market cap has no bearing on how easily can you survive/shrug off difficult times - what matters is mostly how in order are your financials and the sector. The reason large caps, in general, might weather a storm more easily is simply because they are established and therefore their financials are generally more healthy, while many small caps are still struggling or borrowing a lot so that they can grow.
Imagine (an extremely small portfolio, just for exemplification purposes) composed of 4 stable/growing and low debt small caps: one funeral care company, a discount retailer, a foreclosure company and an healthcare products provider. This portfolio should overperform any random large/mega cap during any recession.
Am I missing something?
Submitted December 09, 2017 at 11:43AM by owlstyg http://ift.tt/2C05KSq
