Believe it or not, some investors were able to boast about their 2008 stock returns.

Who are these people, you ask? Investors in these top-performing stocks of 2008:


Dividend-Adjusted Percent Increase From 1/1/2008-12/31/2008

Market Capitalization on 1/1/2008

Emergent BioSolutions (NYSE:EBS)


$150.5 million

Star Scientific (NASDAQ:STSI)


$64.9 million

Crawford & Company


$210.1 million

American Italian Pasta (NASDAQ:AIPC)


$129.0 million

Mexco Energy Corporation (AMEX:MXC)


$7.0 million

Data from Capital IQ, a division of Standard & Poor's.

Notice anything about those companies? They're small. They're very small. Now compare their performance to the top performers of the S&P 500 Index:


Percent Increase From 1/1/2008-12/31/2008

Wrigley (acquired)


Family Dollar (NYSE:FDO)


Anheuser-Busch (acquired)






Data from Bespoke Investment Group.

While the latter is nothing to sneeze at, particularly given that the overall market dropped 37% in 2008, wouldn't you rather have the former?

Where you'll find the double-baggers
The tendency of small caps to outperform their large-cap brethren isn't just a down-market happenstance -- it held true in 2005, 2006, and 2007 as well.

In any market, the stocks with the most potential for outsized returns (stocks that are going to double, triple, or even increase your investment tenfold) are not found among large caps, but rather among stocks that are:

  1. Ignored.
  2. Obscure.
  3. Very small.

Why? Because the market's greatest inefficiencies (and, thereby, greatest opportunities) lie hidden among the investments that Wall Street analysts and institutional investors shun only because of their size.

Starting today
Investing in small-cap stocks makes many people nervous -- and today's market volatility is sending many people into the arms of stable, financially pristine large-cap stocks. Which makes now an even better time to buy up those oversold small caps.

But not all small caps are equal. You want to make sure you buy small caps that have a rock-solid balance sheet and a solid business model. Both these factors ensure that the company will be around five to 10 years from now, giving it plenty of time to double, triple, or increase tenfold in size.

At Motley Fool Hidden Gems, these are precisely the kinds of stocks we're recommending right now -- and we're putting real money behind our best ideas. Our real-money portfolio is currently up more than 2.5% in less than two months -- and one stock has already skyrocketed more than 115%!

If you'd like to see which small-cap stock has given us such amazing returns, as well as all the other stocks that have made it into our portfolio, you can find out completely free. Click here for more information.

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Adam J. Wiederman owns no shares of the companies mentioned above. The Motley Fool's disclosure policy makes sure he'd tell you if he did.