Chaos in Motion

by Harry Jones

(May 27, 1999) -- I don't wear a watch because growing up outside and still spending each day outside, I've learned how to tell time by the sun and shadows. If there isn't a sun, I know the time instinctively, typically to the hour within twenty minutes. I recently read in the newspaper that people who don't wear watches have lower stress levels. That being the case, luckily there are truly few reasons to wear a watch, although you wouldn't believe it until you tried it, the article said. Without a watch, after some time you learn how to go through the day anyway, even business days, it said.

The morning routine takes on a natural order before long. No looking at the watch and running off late each day. You leave the door each day at about the same, correct time. And at work you make meetings by seeing the numerous clocks around the office or by friendly conversation. Supposedly, that is less stressful than always checking your watch. Finally, in leisure why have a watch at all?

Time is always in motion. A person, like all animals, is aware of it more than any clock can be, whether he knows it or not. Once a person is aware of this, the need for a watch is gone and life is more natural. Or so the newspaper said, and I have to agree from experience. And if it works, it can apply to anything, I think. Generally, there is too much forced order in many lives, rather than natural order. As the newspaper said, "After all, what good is there in tracking what is essentially chaos in motion?"

Small Caps vs. Large Caps

by Jeff Fischer (TMFJeff)

Last week's column (linked below) suggested that small-cap stocks, because they have historically outperformed large-caps by a few percentage points annually, are an attractive index fund option. On the Harry Jones message board, readers raised issue with the idea and, unfortunately, Harry hasn't shown up to settle the discussion once and for all.

On the board, Fool WilliamLipp responded to the column:

"I believe that buying small cap indexes is Wise advice, and should be retracted. I invested in small cap funds in my pre-Foolish days. I learned interesting things about the alleged outperformance from this post and Forbes article:

"Highlights are that the small caps have outperformed in only 7 years in 3 time periods, all periods were coming out of a bear market, and the most recent was over 20 years ago. If these figures are correct, this is advice that would have underperformed the S&P 500 every year of the last 20 years, and only makes sense if you can time a market recovery.

"Here's some additional support. One of my small cap funds, showing the Russell 2000 index over the last 10 years is 11.46%, versus the S&P 500 over that period of 18.76%. You gotta have really long term faith to endure 10 years of underperformance by 7% annually in the hopes of eventually getting a 2% net gain.

So, is it really true? Have small caps underperformed the S&P 500 over the past decades? The issue is a sticky one and the debate continues on the Harry Jones board. William and others have since posted different references, showing varying returns over various periods. Check it out on the Harry board. Post what you know. We'll have more next week. The truth is out there. We'll find it.

Meanwhile, the short lesson reiterated to me is: numbers can be made to show almost anything. Question everything. I'm sure that Harry would agree. Meanwhile, until this is concluded, my apologies for any debatable words here.

Fool on!

 Recent Harry Jones Portfolio Headlines
  08/26/99  Is it a Nifty 500? Part II
  08/19/99  Is it a Nifty 500? Part I
  08/12/99  Illuminating Index Funds, Part Two
  08/05/99  Illuminating Index Funds
  07/29/99  The Foolishness of Index Funds
Harry Jones Portfolio Archives »  

05/27/99 Close

Stock Change Close SPY -1 7/8 128.56
Day Month Year History HARRY -1.44% -3.52% 0.73% 0.73% S&P: -1.79% -4.03% 4.56% 4.56% NASDAQ: -0.33% -4.86% 10.33% 10.33% Rec'd # Security In At Now Change 1/4/99 16 S&P Depos 127.63 128.56 0.73% Rec'd # Security In At Value Change 1/4/99 16 S&P Depos 2042.00 2057.00 $15.00 CASH $0.00 TOTAL $2057.00 Yesterday Today Change S&P Depos 130.44 128.56 SPY -1 7/8


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