Smart Money Thinks Big

In the past five years, the simple formula for investing success has been to buy small-cap and value stocks. As of Nov. 30, the Russell 2000 was up 41% in the past five years vs. a 1% gain for the Dow Jones Industrial Average and losses of 9% and 23% for the S&P 500 and Nasdaq Composite, respectively. In the same period, the Wilshire Large Cap Value Index has risen 15% while its growth counterpart has fallen 11%.

The same pattern is evident in the two-year timeframe as well. But the outperformance of small-caps has shrunk in the past year while growth has started to outpace value.

To be sure, the past five years has been littered with false promises of a big-cap comeback. But it's notable that many of the smarter "gurus" predict the best way to make money going forward will be in big-cap and growth stocks. ...