Did Small Cap Tech Stocks tumble enough?

[matjung]

Hi
over the last 20 years I was never an investor of US Small Caps.
In December I started going in, and bought the second instrument a few days ago.
Observations.
The prices are down some 80 to 90% compared with 2020/2021 highs.
Market values: Below 1B each
Large cap index like Nasdaq 100 seems to resume going down.
As of now (5th January), I am not yet sitting on a loss.



I expect that Apple/Microsoft are going to loose their Trillion Dollar market capitalization.


Question:
How correlated are Small Cap Techs with Large Cap Techs?
Is it possible that small caps stopped going down, while large caps are still going down?
If the stuff is expected to have a high correlation, I would go out now, and return later when the small cap became a micro cap.



Thanks for sharing your experience with small caps / micro caps.

[RetiredAt49]

I haven’t personally researched this topic but you could use https://www.portfoliovisualizer.com/

[FiveDriver]

Are you picking individual Small Cap Techs, or are you buying into ETF's ??

I've noticed that SLY and SLYV had been doing well in December, and have started January on an upswing also. I might dip a toe in that water next week.

I think the small cap stocks in general, move differently during market turning points and start upward before the Large Caps. I wouldn't touch the QQQ's with a 12-foot pole at this juncture.

[FREE866]

I proved to myself a long time ago I'm an awful stock picker so I don't buy individual stocks. However, I do think it's very important to have small cap exposure as part of a broad based equity portfolio of ETF's. I've owned IWM for a couple decades and have been very pleased.

[matjung]

Quote:

Originally Posted by FiveDriver Are you picking individual Small Cap Techs, or are you buying into ETF's ?? I've noticed that SLY and SLYV had been doing well in December, and have started January on an upswing also. I might dip a toe in that water next week. I think the small cap stocks in general, move differently during market turning points and start upward before the Large Caps. I wouldn't touch the QQQ's with a 12-foot pole at this juncture.

In the particular case I picked two stocks.

[FiveDriver]

Quote:

Originally Posted by matjung In the particular case I picked two stocks.

Just out of curiosity....how did those two stocks do in Friday's up day ??

[sengsational]

I'm surprised about the 80% figure, and wonder where that came from. VBR was down 9 ish % in 2022...fared better than the large cap index.

[jollystomper]

Quote:

Originally Posted by matjung Question: How correlated are Small Cap Techs with Large Cap Techs? Is it possible that small caps stopped going down, while large caps are still going down? If the stuff is expected to have a high correlation, I would go out now, and return later when the small cap became a micro cap.

One approach, take a look at the Callan Periodic Table of Investment Returns. It is not yet out for 2022, but it can give you some idea of the degree of correlation between small and large cap stocks (I know this is specifically not small cap tech and large cap tech, but perhaps a starting point): https://www.callan.com/periodic-table/

[Lsbcal]

Periodically I record the PE ratios for growth and value index funds at Vanguard. Here is a comparison of PE's for a few time periods relative to Dec 1, 2022:




As far as PE is concerned small value is in the bargain basement at just 50% of it's PE in May 2011.

[FiveDriver]

That is a very interesting spreadsheet my friend.

[matjung]

Quote:

Originally Posted by sengsational I'm surprised about the 80% figure, and wonder where that came from. VBR was down 9 ish % in 2022...fared better than the large cap index.

I picked two mid caps which turned into small caps.

This are tech small caps.


On Friday, the one up by 1.77%, the other one up 3.54%

[FiveDriver]

I'd like to hear more about the 3.5'er.....are you at liberty to divulge ??

[matjung]

I replied into your personal mailbox.

[Montecfo]

If you picked two stock, then their fate will be determine more by individual performance than anything else.

I am focused on value at present which tends to underweight tech.

[FiveDriver]

Thank you Sir.

[matjung]

Quote:

Originally Posted by Montecfo If you picked two stock, then their fate will be determine more by individual performance than anything else. I am focused on value at present which tends to underweight tech.

I tend to disagree with you.
In my opinion/experience individual stocks tend to correlate with the sector/industry/capitalization/country where they are members in.


In rare cases I witnessed that a stock went up, while the market went down.
Among quarterly numbers, correlation goes down. When the facts are known, the stock tends to correlate again with its market at a higher or lower level. The lower level was the big problem in the last few quarters.



I agree, Value Stocks are expected to perform better for the next period of time, compared with those who don't make profits.

If Value will beat Fixed Income is a separate discussion.

[Montecfo]

Quote:

Originally Posted by matjung I tend to disagree with you. In my opinion/experience individual stocks tend to correlate with the sector/industry/capitalization/country where they are members in.

Owning a single stock carries with it the greatest chance of diverging from the performance of its sector. The second greatest risk, if you want to call it that, is owning only two stocks.

This is just the nature of a portfolio.

Stated differently, the more of the stocks you own within the sector, the more likely your performance will mirror the sector.

(Understand that I have no issue with you owning the stocks you pick. This is just an illustration)

Quote:

In rare cases I witnessed that a stock went up, while the market went down.

Well, there is a lot more to it than that. There is direction, and then there is magnitude.

Just look at the individual stocks within each sector graphic linked below.

Each sector has stocks that made money and stocks that lost money, and the range of performance for any individual stock is wide, even in a year where markets were overwhelmingly down.

https://www.visualcapitalist.com/bes...-sectors-2022/

I think picking stocks within sectors you expect to perform well makes sense. But if you think an individual stock will almost always mirror the sector ( I do not see that as true), it would be safer from a portfolio standpoint to own the entire sector.

Quote:

I agree, Value Stocks are expected to perform better for the next period of time, compared with those who don't make profits. If Value will beat Fixed Income is a separate discussion.

I do not know how value will perform it appears to hold the greater opportunity in this environment. I do not see bonds in play in that regard as I compare equity v equity.

[matjung]

Agreed. In the worst case I pick two stocks which file for chapter 11.
I confirm the observation. The more financial instruments I acquired over the years, the closer the performance correlates with a benchmark.
I need to think, when is the best time to switch from Stock Picking to ETF Picking.


Individual stocks may not mirror the index, but correlate with it.When they do not correlate with the index, they require another index.



Magnitude
If my stock goes up by 10% and the benchmark by 13%
I usually do not care about the difference - up is up.
That I picked a lame duck can happen.



If my stock goes down by 20% and the index by 10% - then I care
In that case (happened a few times) I go hunting for a stock that dropped by 30 or 40%. When I expect the index to recover, then I go into the stocks that lost more money than my stocks.

By switching from one Looser to another Looser I made a few times above average returns when the bigger looser caught up with the index.


Wasn't it Warren Buffet who made the statement, if he had to manage only one million dollars his rate of return would be 50% per year

Last year I was having 5 stocks which achieved 50%.
The rest of the portfolio went down like the big indices.

I have to thank the tail risk or tail chance for beating the market.
2022 Performance TWR -11.38 %


I was looking for an ETF that covers EdTechs or AdTechs.
Did not find anything that was appealing to me.

My impression is, those markets consist only of small caps.

The two exceptions are Alphabet/Meta - but I do not want to own those shares.
As stated somewhere above. I expect that large tech caps resume going down.


Thanks for the link to visualcapitalist
I did not know them before.

[matjung]

It feels like they are up by 20 to 30%
Selection: TWOU, PUBM
When Stride (LRN) [competitor of TWOU] reported numbers, it jumped from 30 to 40 Dollars
For the moment I think, small cap techs tumbled enough, and stock pickers returned to collect them. Also bloggers at Motley Fool, Zacks, Simply Wall & co resumed pushing / writing about small caps

[Al18]

Motley Fool seems to be a marketing organization trying to get you to buy stocks IMHO. I think there’s plenty of downside risk, especially for small caps - which are dependent on borrowing money to expand in a high interest rate environment. I think you’ll see a lot of sideways action this year.