The Best Companies, the Biggest Returns, or Both?

Forbes recently released its list of America's best small companies. Here are the top five, in order.

This follows Forbes' ranking earlier in the year of the 400 best large companies. Here are those top five, in order.

From an operational standpoint, these are all excellent companies. But which ones would you have rather been a shareholder of for the past five years?

Let's check the returns
First the small ...

... and now the large.

Which companies would you rather have owned?
While you probably would have been a happy shareholder of any one of these excellent companies, you would have been much happier -- and wealthier -- as a shareholder of one of America's best small companies.

That's because the stocks that offer the best returns on the market are small caps. They simply have far more room to grow.

Knowing that, here's a question: With limited hours in the day, would you rather spend your time and resources trying to identify the best publicly traded large companies or the best publicly traded small companies?

While either would be a rewarding effort, the rewards are far, far greater if you concentrate on small companies.

The Foolish bottom line
Of course, small caps can be volatile. If the market's swings worry you, consider broadly diversifying across individual small caps or getting exposure to large caps via a low-cost index fund.

But when it comes to research, the lesson is clear: Concentrate your efforts on finding the best small companies.

If you'd like some help doing just that, join us at our Motley Fool Hidden Gems small-cap investment service. Each month, we dig up two official recommendations and a number of other small- and micro-cap investment ideas for our subscribers. And our methodology works -- since the service's inception in 2003, our picks have returned 40% on average, vs. 18% for the S&P 500. Sound worthwhile? Click here for more information about a 30-day free trial.

Tim Hanson does not own shares of any company mentioned. Moody's is a Motley Fool Stock Advisor recommendation. This link to The Motley Fool's disclosure policy was made possible by crack editor Brian Richards.