More Small Cap Value Thoughts

I'm strictly in VOO.

What convinced me? Well, if your small caps become mega caps someday they'll be kicked OUT of the small cap fund! Stay invested in the S&P 500 and you're guaranteed to have the 500 biggest and best winners than can grow to perpetuity….with only the LAGGARDS being kicked out! The top WINNERS never are.

Small caps and MOST mid caps are a drag on your portfolio. Just stick to VOO.

Three pieces of legislation reshaped the economics of being a publicly traded company:

Reg FD (2000) ended selective disclosure to analysts. Small companies lost the institutional coverage that drove their liquidity.

Sarbanes-Oxley (2002) imposed compliance costs that scale with corporate complexity, not market cap. The fixed cost of being public became prohibitive for smaller firms.

Dodd-Frank (2010) added layers of reporting that compounded the burden.

The cumulative effect was straightforward: being a public company became expensive, restrictive, and litigated. At the same time, private equity and late-stage venture capital became flush with capital. Companies that would have IPO’d in 1995 now stay private for a decade longer — sometimes forever.

The growth engine moved off-exchange. The result 42% of all Russell 2k companies are unprofitable.

Small caps are where large caps go to die. All this changed after the GFC. the market is different. JL's great advice of VTI worked pre GFC because the structure of the market was different.

Now small caps are waste of your allocation. just stick to VOO. or factor funds.

Cheers - Daniel

VT and chill. Worst thing you can do is constantly waffle, changing your mind and allocation.

The back and forth about SCV in this thread is definitely interesting intellectually. I understand both (or all) sides of the debate. Ultimately, I see a conscious decision for or against is defensible for the reasons discussed here and in the link provided to the Ben Felix Interview. I personally lean away from adding SCV, partly because I’m already retired and don’t feel like waiting around to see SCV eventually prove its mettle in the specific conditions that will allow that to happen.

The lost decade immunization concept is compelling, but for that kind of risk I just prefer the hedge of international diversification, as that strikes me as having a higher likelihood of continuing to pay off over recurring historical periods that I’m going to see in my remaining years on this planet.

That’s just me. Merrimen correctly characterizes long stretches of SCV underperformance not as a failure but as payment of a risk premium. But he has also pivoted to occasionally articulating the more modest recommendation of a 10% tilt mentioned in the book 2 Funds For Life. The recommendation recognizes the advantage of the tilt , but for me it introduces the diminishing returns argument that spawned the post that started this thread.

Honestly, if I were a young, beginning investor my risk/reward analysis on this issue would probably be different. But now that my VT growth engine allocation of 65% is gong to shoulder the heavy lifting over a time span of 20 to maybe 30 years, I’m inclined to sit back and appreciate SCV as academically valid, even though I won’t directly participate.

The previous thread on this is here for other readers’ reference. I just want to mention here that reported returns are inclusive of expense ratio. You seem to be subtracting expense ratio from returns which is incorrect.

give another take, look back at the 2000s decade where market was flat but small cap value was still up 9% annual (see testfolio link; as small cap value is diversified from large cap growth). Now none of us have crystal balls to say what asset class will perform best but having some weight to small cap value has a possible advantage. What’s more, specifically for those approaching retirement, having diversified equity split (LCG and SCV) can be very advantageous (see risk parity radio).

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