What evidence or research suggests that mid- or small-capitalization stocks should perform better than large caps?
I think it's safe to say that Apple cannot grow in value in the next 20 years as fast as it did in the prior 20. It rose 100 fold to a current 730B valuation. 73 trillion dollars is nearly half the value of all wealth in the world.  Unfortunately, for every Apple, there are dozens of small companies that don't survive. Long term it appears the smaller cap stocks should beat large ones over the very long term if only for the fact that large companies can't maintain that level of growth indefinitely.  A non-tech example - Coke has a 174B market cap with 46B in annual sales. A small beverage company can have $10M in sales, and grow those sales 20-25%/year for 2 decades before hitting even $1B in sales. When you have zero percent of the pie, it's possible to grow your business at a fast pace those first years. From Dimson, Elroy, Paul Marsh, and Mike Staunton. Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, N.J: Princeton University Press, 2002: Disappointingly, the small firm effect has not proved the road to   great riches since soon after its discovery, the US size premium went   into reverse. This was repeated in the United Kingdom and virtually   all other markets around the world. Despite their disappointing performance in recent years, the very   long-run record of small-caps remains one of outperformance in both   the United States and the United Kingdom. Furthermore, mid- and   small-size companies are still an important asset class. Their   differential performance over long periods of history shows that there   is useful scope for investors to reduce risk by diversifying across   the “large” and the “small” capitalization sectors of the market.   Furthermore, given the pervasiveness of the size effect across the   entire size spectrum, it is important to all investors since the   size tilt of any portfolio will strongly influence its short- and   long-run performance. This holds true whether there is a size premium   or a size discount. The size effect has certainly proved persistent   and robust. What is at issue is whether we should continue to expect a   size premium over the longer haul. And accompanying charts:    And one chart from BlackRock: Efficient Frontier has an article from years ago about the small-cap and value premiums out there that would be worth noting here using the Fama and French data. Eugene Fama and Kenneth French (F/F) have shown that one can explain   almost all of the returns of equity portfolios based on only three   factors: market exposure, market capitalization (size), and   price-to-book (value). Wikipedia link to the factor model which was the result of the F/F research.
"Below is just a little information on short selling from my small unique book ""The small stock trader"":  Short selling is an advanced stock trading tool with unique risks and rewards. It is primarily a short-term trading strategy of a technical nature, mostly done by small stock traders, market makers, and hedge funds. Most small stock traders mainly use short selling as a short-term speculation tool when they feel the stock price is a bit overvalued. Most long-term short positions are taken by fundamental-oriented long/short equity hedge funds that have identified some major weaknesses in the company. There a few things you should consider before shorting stocks: Despite all the mystique and blame surrounding short selling, especially during bear markets, I personally think regular short selling, not naked short selling, has a more positive impact on the stock market, as: Lastly, small stock traders should not expect to make significant profits by short selling, as even most of the great stock traders (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen,) have hardly made significant money from their shorts. it is safe to say that odds are stacked against short sellers. Over the last century or so, Western large caps have returned an annual average of between 8 and 10 percent while the returns of small caps have been slightly higher.  I hope the above little information from my small unique book was a little helpful! Mika (author of ""The small stock trader"")" "From one millionaire to another, perhaps I can allay your fears.  I am still long and continue to invest.  &gt;Trade wars  Won't happen.  Trump listens very carefully to the business community and they all tell him it's political and financial suicide.  Remember how fast Trump backed off the NAFTA termination when the business community told him how many billions of dollars would be destroyed and tens of thousands of jobs lost?  NAFTA is no TPP.  NAFTA was in force and the positive benefits already quantified with real dollars.  Trump was able to pull out from TPP because it was never in force so there was nobody howling about job losses.  Had TPP been in force and the huge positive economic benefits been realized, Trump would not have pulled out.  &gt;exorbitant rent  Correctable government policy failures around housing development.  There is plenty of affordable housing (and land for expansion) available in the fast growing cities in TX and elsewhere.  Protip - that's why they are fast growing.  Businesses need affordable land and workspaces too.  &gt;tuition debt  Overblown.  Boomers are leaving the job market en masse and being replaced with a highly educated generation.  The average college debt load is something like $35K which is totally manageable for the vast majority of graduates.  [The typical student loan burden is around the same amount as the average car purchase in the US.](http://mediaroom.kbb.com/2017-02-01-New-Car-Transaction-Prices-Remain-High-Up-More-Than-3-Percent-Year-Over-Year-In-January-2017-According-To-Kelley-Blue-Book)  &gt;unaffordable health care  Fixable.  Once Obamacare is eliminated and replaced with a more market-oriented system we should see costs come down.  It's absolute insanity that people are forced to pay for insurance riders on stuff they will never use, effectively lighting money on fire.  Policies will get stripped down to essentials and serve customers much better.  High risk / chronic patients will go into government programs where they belong, and the vast majority of the healthy people left will see bills fall.  &gt;massive government debt  [High, but not really a problem.](https://fred.stlouisfed.org/series/GFDEGDQ188S)  Debt to GDP is perfectly fine and manageable where it is, and the government has the power to write Treasurys and sell them to willing buyers to finance spending.  The dollar is the reserve currency of the world and will be for decades to come.  The Euro has no chance and the international community doesn't trust China to manage the yuan well.  &gt;wealth inequality that's going to explode under Trump  Wealth inequality is irrelevant to market returns.  Absolutely 100% irrelevant.  Financial returns are generated where opportunities exist to make a financial return, not where wealth inequality is highest or lowest.  However, to challenge your view, consider that some of the best returns in the last 10-20 years have come from emerging markets like the BRICs, which have the highest wealth inequality.  &gt;automation  That's what was said about the cotton gin, the car, the steel mill, the train, the telephone, the internet.  Wrong every time, and will continue to be wrong in the future.  It's pretty arrogant to think that somehow things will be ""different this time.""  Human capacity for innovation is ridiculous.  [You're arguing against a very strong and accelerating trend.](https://fred.stlouisfed.org/series/GDP)  &gt;globalization  Excellent for stock market returns, in case you haven't noticed.  &gt;isolationism  Terrible for stock market returns, I agree.  But see my point above about NAFTA.  Trump actually listens to businesses as opposed to Obama.  He will tread very carefully here.  &gt;stock market bubble  There is no evidence of a stock market bubble.  Trump is talking about reducing corporate taxes from 35% down to a much lower rate like 20%.  That immediately increases the value of stocks, boosts economic activity, boosts economic competitiveness, and reduces drag on the economy.  Even better, as small/medium sized businesses pay much closer to 35%, lowering the tax helps small/medium sizes businesses the most.  That's why small caps are spanking large caps right now.  Just a note - the stock market is up around 20% since the election, pretty close to the amount the corporate tax rate is slated to drop.  It's critical this tax cut get done to support current valuations.  I believe it will as it's long overdue.  &gt;housing market bubble  There is no bubble, there is lack of supply.  Skyrocketing rents as you mentioned above is the opposite of a housing market bubble.  It's the symptom of a severe housing market shortage.  House building needs to increase dramatically and it will in areas that reduce regulations.  &gt;lack of real banking reform  Dodd-Frank and other regulations are on the chopping block, which will help.  Reforms are coming.  Large banks are shielded from real competition by all these laws.  I'd like to see more ""startup banks"" competing.  &gt;record household debt  [Nope, not even close.](https://fred.stlouisfed.org/series/FODSP)  Households have deleveraged since the financial crisis and are in better shape than they've been in a few decades.  &gt;Republicans controlling all three branches of government  AKA, there's a high chance that taxes and regulations will be reduced, which is good for economic growth." "First, two preliminaries, to address good points people made in comments. As AbraCadaver noted, before you move your $30k to something that might lose money, make sure you have enough cash to serve as an emergency fund in case you lose your income. Especially remember that big stock market crashes often go hand-in-hand with widespread layoffs. Also, you mentioned that you're maxed out in a 401k. As JoeTaxpayer hinted, this could very well already be invested in stocks, and, if it isn't, probably a big part of it should be. Regarding your $30k, you don't need to pay anybody. In general, fees and expenses can form a big drag on your investments, and it's good to avoid them as much as possible. In particular, especially with ""only"" $30k, it's unlikely that advisers can save you more than they cost. Also, all financial advisers have a cost: the ""free"" ones usually push you into investing in expensive funds that make them money at your expense. In that regard, keep in mind that, unlike a lawyer or a doctor, a financial adviser is not required by law to give advice that's in your best interest. When investing, there is a pretty short list of important considerations that you should keep in mind: (If anyone has any other points they think are similarly important, feel free to suggest an edit.) Practically speaking, I'd suggest investing in index funds. These are mutual funds that invest very broadly, in a ""passive"" way that doesn't spend a lot of effort (and money) trying to pick individual high-performing stocks or anything like that. Index funds provide a lot of diversification and tend to have low expense ratios. (Other, ""actively managed"" funds tend to be more expensive and often don't outperform index funds anyway.) If you're saving for retirement, there are even target date funds that are themselves composed of a small number of index funds (often domestic and international stocks and bonds), and will increase the proportion invested in bonds (safer) as they get closer to a target retirement date. See, for example the Vanguard Target Retirement 2045 fund. A fund like that one might be all you need if you are saving for retirement. Finally, you can invest online without paying any advisers. Not all companies are created equal, however; do your research. I personally highly recommend Vanguard, since they have a wide variety of no-load index funds and tend to have very low expense ratios. (No-load means you don't have to pay a fee to buy and sell.) Part of why they are inexpensive is that, unlike most financial companies, they are actually a cooperative owned by those who invest in their funds, so they don't need to try and milk a profit out of you. (Don't let that suggest that they're some ""small-potatoes hippie firm"", though: they're actually one of the largest.) I hope I helped. Keep posting if you have more questions!" "You should only invest in individual stocks if you truly understand the company's business model and follow its financial reports closely.  Even then, individual stocks should represent only the tiniest, most ""adventurous"" part of your portfolio, as they are a huge risk. A basic investing principle is diversification.  If you invest in a variety of financial instruments, then: (a) when some components of your portfolio are doing poorly, others will be doing well.  Even in the case of significant economic downturns, when it seems like everything is doing poorly, there will be some investment sectors that are doing relatively better (such as bonds, physical real estate, precious metals). (b) over time, some components of your portfolio will gain more money than others, so every 6 or 12 months you can ""rebalance"" such that all components once again have the same % of money invested in them as when you began.  You can do this either by selling off some of your well-performing assets to purchase more of your poorly-performing assets or (if you don't want to incur a taxable event) by introducing additional money from outside your portfolio.  This essentially forces you to ""buy (relatively) low, sell (relatively) high"". Now, if you accept the above argument for diversification, then you should recognize that owning a handful (or even several handfuls) of individual stocks will not help you achieve diversification.  Even if you buy one stock in the energy sector, one in consumer discretionary, one in financials, etc., then you're still massively exposed to the day-to-day fates of those individual companies.  And if you invest solely in the US stock market, then when the US has a decline, your whole portfolio will decline.  And if you don't buy any bonds, then again when the world has a downturn, your portfolio will decline.  And so on ... That's why index mutual funds are so helpful.  Someone else has already gone to the trouble of grouping together all the stocks or bonds of a certain ""type"" (small-cap/large-cap, domestic/foreign, value/growth) so all you have to do is pick the types you want until you feel you have the diversity you need.  No more worrying about whether you've picked the ""right"" company to represent a particular sector.  The fewer knobs there are to turn in your portfolio, the less chance there is for mistakes!" You're not seeing the forest for the trees.    Proper capital allocation takes diligent research from a community in choosing the best prospects.  That community then supports LONG-TERM investment in that company.  This is how proper companies are fostered; proper research is done; technologies advance, societies develop.  Long-term investment leads to proper capital allocation.  Please do tell me how short-term investment has any value in proper capital allocation. Conglomerates don't work. We've seem thay countless times in countless periods in countless places in history... A focused company will always outperform an unfocused company in the long run...     Grocery stores trade at tiny multiples. Tech firms at massive multiples. The instant you buy a 3x EBITDA when you're trading at 15x EBITDA, you've increased the market value of the acquired firm by 5x... As said previously, most of the time volume does not affect stock prices, except with penny stocks. These stocks typically have a small volume in the 3 or 4 figure range and because of this they typically experience very sharp rises and drops in stock prices, contrasting normal stocks that go up and down constantly every minute. Volume is not one thing you should be looking at when analyzing a stock in most cases, since it is simply the number of people of trades made in a day. That has no effect on the value of the company, whereas looking at P/E ratios, dividend growth, etc all can be analyzed to see if a company is growing and is doing well in its field. If I buy an iPhone, it doesn't matter if 100 other people or 100,000 other people have bought it as well, since they won't really affect my experience with the product. Whereas the type of iPhone I buy will. There's an interesting paper, Does Investor Attention Affect Stock Prices? (Sandhya et al), where researchers look at related stock tickers.  When a large cap, better-known stock jumps, smaller firms with similar symbols also rise.   Pretty nuts -- I interviewed the author of the paper [here](http://www.tradestreaming.com/?p=3745). There's also a transcript.