Keyword: Nifty Fifty

Is an informal term used to refer to 50 popular large-cap stocks traded on the New York Stock Exchange in the 1960s and early 1970s that were widely regarded as solid buy-and-hold growth stocks. Companies in this group demonstrated consistent earnings growth and traded at high P/E ratios. The nifty fifty included fast-growers like Polaroid, Sony, McDonald’s and Disney. The idea of buying large proven companies makes sense (they have better access to financing, they are more diversified, they attract the best and brightest managers and governments are more likely to bail out companies deemed “too big to fail”). But even great stocks are a bad bet if you pay too much. By 1972, Polaroid traded at 90 times its earnings, Sony at 92 times, McDonald’s 83 times and Walt Disney 76 times. When the nifty fifty crashed, they reduced the returns of big stocks and a nine-year period of unusually strong growth for small-cap stocks ensued.

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Time to Think Big

At first glance, it appears that small stocks do much better than big stocks.

But look closer and both groups do about the same most of the time.

From 1926 through 2006,   Read More