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The incredible shrinking small stock


When academics write about the "small-cap effect," they are typically referring to the tendency for stocks with small stock-market values to outperform those with big market values, even after adjusting for the higher risk of small stocks. But seasoned investors know there are many small-stock effects, along with many microcap and midcap effects.

While you should always be looking for opportunities in all corners of the market, you should know what you are getting into. Stocks of different sizes hold different kinds of risks, and different factors work better in some market-cap segments than others.

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