Ideal (?) Market Cap Weighting

[Robandcindy2]

Unbelievably, I can't seem to find any theories regarding the optimal allocation to Small, Mid and Large Cap stocks (and I'm usually a Google-meister)...

Any thoughts?

Cheers,

Rob

[Dividend Watcher]

Rob, I did a cursory look at that years ago and didn't find any meaningful research on the topic either.

Then I started looking at some of the companies that fit those categorizations and, in general, found that large caps were slower growers in EPS and yield although they were more dependable. Mid-caps generally have a lower yield to start with but their dividend growth was a little higher but also more volatile. As expected, small-cap yields were lower yet and didn't provide much greater growth in the dividend and were more volatile. The small-caps that provided a higher yield ended up being slow growers in that yield. All the above are generalizations I observed (didn't include REITs, BDCs and MLPs at the time) and you'll find many exceptions to the rule.

I gave up trying that angle and decided to pick companies that I liked the fundamentals and diversified across industry sectors and yield vs. growth. Market cap doesn't come into play for me.

[Robandcindy2]

DW-
Agree, not much out there and quality trumps theory. I had just done a rather exhaustive crosscheck of where we stood with all of our equity investments (stocks plus mutual funds in the 401K) and we were at 11% Small, 17% Mid, 72% Large.

I had targeted 20, 20, 80 and didn't want to do some big "rebalancing" without justification. I'm not that far off anyway and probably on the conservative side for 58 years.

Cheers!

Rob

(08-14-2014, 01:09 AM)Dividend Watcher Wrote: Rob, I did a cursory look at that years ago and didn't find any meaningful research on the topic either.

Then I started looking at some of the companies that fit those categorizations and, in general, found that large caps were slower growers in EPS and yield although they were more dependable. Mid-caps generally have a lower yield to start with but their dividend growth was a little higher but also more volatile. As expected, small-cap yields were lower yet and didn't provide much greater growth in the dividend and were more volatile. The small-caps that provided a higher yield ended up being slow growers in that yield. All the above are generalizations I observed (didn't include REITs, BDCs and MLPs at the time) and you'll find many exceptions to the rule.

I gave up trying that angle and decided to pick companies that I liked the fundamentals and diversified across industry sectors and yield vs. growth. Market cap doesn't come into play for me.

[KenBob]

I have been struggling with weighting for quite awhile. Now I have settled on a system with which I am comfortable.

Weighting is basically how a portfolio is diversified. Diversification is the technique used to reduce risk. To minimize risk, I weight my portfolio based on quality as determined by the company's credit rating.

I set a stock value for a fully weighted position, then apply a weighting factor times the fully position value to determine the weighting limit for buying. The following are the weighting factors as determined by the credit rating:

AAA to A= 1.0
BBB+ = 0.8
BBB = 0.5
BBB- = 0.2
<BBB = 0

[navyasw02]

Found this a while ago: http://www.morningstar.com/products/pdf/...search.pdf

[800peace]

I'm more focused on industry diversification than market cap diversification. I'm not sure companies I find invest-able would fit neatly into a market cap diversification scheme.