Rooting for the Stocks We Don’t Own

by | Sep 3, 2021 | General

Fewer stocks are pushing the market higher

Most of the stocks we own in portfolios happen to be larger companies. This is not a criterion for investment at Dock Street, but it is the result of 1) holding great businesses for many years as they get bigger, and 2) finding more of the financial advantages we value in larger companies.

In the last few months (and years) that has paid off handsomely, but we would rather see more stocks doing well, especially smaller companies.

The chart below illustrates what’s been happening since March—large company stocks continue to drive up the S&P 500, while smaller companies have fallen behind. 

 

         S&P 500 vs Russell 2000  —  Large Companies vs Small Companies

       March 15, 2021 through September 1, 2021

 

The differences aren’t trivial. Since March 15th the S&P is up over 14%, while the Russell 2000 (smaller companies) has fallen more than 2% in price. In short, fewer stocks are participating in the gains measured by the major indexes, a process (if it goes long enough) that can often precede a major drop in the stock market. 

What could be happening? As bull markets age investors tend to sell smaller, riskier stocks first and hang on to the larger companies that are perceived to be less risky. The major indexes can continue to rise on the strength of the biggest stocks, masking the weakness underneath. 

We’d like to see more stocks, particularly the smaller ones, join the move upward in price. That would suggest a continuation of the bull market. Join us in rooting for the stocks we don’t own.

Best regards,

Daniel A. Ogden


Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.

It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.

To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.

A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.

Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.