Nobody Said Being Contrarian Was Easy! The Russell 2000 is loaded with small companies that have developing growth stories. The index will always have more companies that have yet to reach profitability than the blue chip indexes. It will also always be the source of the next big stock market winners. Historically, when the number of companies losing money in the Russell 2000 surges during recessions, it has been a clear signal to buy the index. You wouldn't think that losing money should be a signal to buy, but for the Russell 2000, it has been. Some of the greatest stock market investors are contrarian for a reason... because it works! Here is how the Russell 2000 has performed relative to the S&P 500 in the five years following each of the prior recessions... "Buy when there is blood in the streets," indeed... On average, a $10,000 investment into the Russell 2000 at the peak of companies in the index losing money would have turned into $28,637 over the next five years. That means investors would've nearly tripled their money. Over these three periods, the Russell 2000 trounced the blue chip S&P 500, outperforming by 62.91%. On April 14, I told you that the Russell 2000 had entered table-pounding buying territory. At that point, the Russell 2000 was down slightly over the past five-year period. In the rare instances that has happened before, the Russell 2000 has performed extraordinarily well in the years following. Since April 14, the Russell 2000 has almost doubled the performance of the S&P 500. I still expect the Russell 2000 to outperform over the next several years from current levels, though I wouldn't be surprised if we saw another major pullback. In fact, I'd welcome it... A pullback would be an opportunity to buy the Russell 2000 at even better prices in advance of what should be another long rally. Good investing, Jody P.S. There's no doubt about it - if you're looking for value in today's market, it pays big to think small. So while a Russell 2000 ETF can offer long-term outperformance, if you're interested in gains as high as 100%, think even smaller... Start here with Alexander Green's "5 Microcaps to Accelerate Your Wealth Starting Today." |
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