Many investors, even professionals, have an investing size and/or style they favor. Large cap. Small cap. Small value. Mid-growth. Maybe they’re more specific—only investing in large Tech firms. Small Midwestern banks. Mid-cap Consumer Discretionary, but only if they’re value and German.
Money managers and mutual funds often offer “products” adhering to strict size and/or style guidelines. And there’s nothing wrong with that. That’s how the institutional world functions and has for decades. Except, typically, institutional clients will ensure they have exposure to essentially all the major styles and sizes (growth and value in small, mid, and large cap, domestic and foreign, and all the standard sectors). When institutions do that, they typically either do these slices passively or hire what they consider to be best-of-breed portfolio managers in each category. But many individual investors, even professionals, mistakenly think their favored size and/or style is tops—the best for all time—and will continue being best going forward. And they invest solely or mostly in that particular size/style/category. A major mistake!

Chasing Heat

Interestingly, for most folks, attachment to a category usually coincides with a run in that size/style that has gone on for some years. At the end of the 1990s, plenty of folks were hot on large growth stocks—because large growth had done so well for so long—and particularly those with ...

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