<FOOLISH WORKSHOP>

Big Cap Growth: Going and Going      

By Jim Stevens (Workshop)

BURLINGTON, VT (August 26, 1999) -- Most of us have seen the commercials: the pink Energizer bunny in all its annoying cuteness just won't stop going. The mega-cap growth companies that dominate the Standard & Poor's 500 index seem to keep going and going as well. This is also quite annoying to some, particularly the Wise mutual fund purveyors whose overpriced products are usually eating the index's dust.

I just got a statement from one of my retirement plans for the second quarter of 1999 -- aren't they fast! -- and couldn't help but notice a blurb in it titled "The Market Finally Broadens." It declared that during the quarter there was a rebound of value-oriented and small-cap stocks. It also offered a lament for the folks who "succumbed" to concentrating their investments in "the hot-performing large growth stock sector."

I have no ax to grind with diversity in stock investing, but it really frosts me when someone uses selected data to "prove" a hypothesis. I didn't have to look far to see how shallow the facts were for this dissing of large cap growth investing. Right on the next page was the historical returns of the funds offered in the plan.

For the three months ending June 30, 1999, their small/mid cap value choice returned 17.19%, the large cap value choice returned 10.63%, while the S&P 500 index choice only retuned 6.91% for the period. The results of this three-month period were all that was necessary to produce a loud "I told you so!" from the friendly fund managers.

I only had to look at the year-to-date column to see the weakness of their data. For that period -- January 1, 1999, through June 30, 1999 -- the small/mid cap value fund returned 5.19%, the large cap value fund returned 7.5%, and the S&P 500 index fund returned 12.01%. No mention was made that the recent small cap and value stock "rebound" didn't even eclipse the outperformance of the S&P 500 index for the previous three months. Over the previous 3-, 5-, and 10-year periods, the index fund was the best-performing choice of this plan by a wide margin, something I think might be worth mentioning.

My point is not that diversity among different market sectors is always a bad thing, but rather that the "advice" offered by seemingly well-meaning professionals is often pretty darn biased. This gem was reported in a section of my statement described as "important information to help you understand your retirement plan." It helped me understand the motives of my plan's fund managers: the expense ratio for the S&P 500 choice is lower than any other choice by a mile.

More reasons to crunch your own numbers and stick with the facts when making your investment decisions.

Have a great weekend.