Steep yield curve: We've just seen the steepest yield curve in the past 50 years. Times like this, when short-term interest rates are much lower than long-term rates, generally presage very strong economic growth. Smaller companies have much more top-line (revenue) leverage than big companies. The Law of Large Numbers makes it more difficult for big-caps to grow quickly. In the early '80s, it was conventional wisdom that small companies should be valued more than big companies because of their ability to grow faster. This is something we'll probably hear again before this long-term phase is complete.

Imbalance in analyst coverage: Dozens of analysts chase down every minute detail on popular big-caps like General Electric (GE - commentary - Cramer's Take), Microsoft (MSFT - commentary - Cramer's Take) and Coca-Cola (KO - commentary - Cramer's Take), while many smaller companies only have one or two analysts, if any, paying attention. This imbalance was created by the massive big-cap rally in the '80s and '90s, in concert with cutbacks in analyst coverage at many investment banks, and it will take many years to correct. Lean against the herd -- in this case, the herd of analysts -- and consider small stocks.

Mutual fund excess: To keep up with the indices in the late '90s, mutual funds were forced to allocate massive amounts of capital to the biggest stocks, at the expense of smaller companies. While some fund companies are now taking note of small stocks, it will take years to accomplish a reallocation of capital and attention to small stock funds.

It's been easy for small-cap investors to beat the S&P 500 since 2000. Does that mean an investor should simply buy a small-cap index fund? I don't think so. The problem is that there are pockets of overvaluation and speculation in small-caps, just as there are in large-caps. The preferable route is to be selective about your spots.

It depends on your risk tolerance, of course, but I've highlighted a few small-cap ideas for aggressive and conservative investors in Value Investor. I also mentioned small-cap Monaco (MNC - commentary - Cramer's Take) to RealMoney subscribers.

The opportunist shouldn't avoid large-caps entirely. While I cautioned against buying "any of the expensive Dow stocks" in an Aug. 9, 2001, column, bargains have begun to appear. In fact, a couple of the Dow 30 components were just added to the stock idea list in the Value Investor.

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