When we are buying a stock, do we consider the stock's capitalization as a factor in our buy or no buy decision? If we do, do we have a basis why we prefer one cap over another? Is there a relationship between a stock's capitalization and its performance? Let's find out.

From 2000 to 2004, ACE'S have picked micro-, small-, mid- and large-cap stocks. Starting in 2005, ACE'S have confined its picks to small-, mid- and large cap stocks. We have often heard or read the conventional wisdom that "small-caps have higher gains but are riskier"; whereas "large caps have lower gains but are less risky". How does the latter conventional wisdom stack up against ACE'S historical figures? Let's check it out.

We tabulated the 12-month gain (loss) of our micro-, small-, mid- and large cap stocks from 2000-2006, and compared those gains (losses) versus the corresponding S&P 500 gains (losses). SEE: Table A below.

RECAP

1. Capitalization do matter for ACE'S stocks. Table A and the ranking below  shows that ACE'S mid-caps are the dominant cap with a 12-mo. average gain of 70.76% (vs. the S&P's 3.17% gain). The mid-caps gain of 70.76% is practically double the corresponding gains of micro-, small- and large-cap stocks (of about 34.14%). Also, the performance of ACE'S mid-caps from year-to-year is high and consistent.
 

Rank	Capitalization	(2000-2006) 12-Month Pick Gain (Loss)	(2000-2006) 12-Month S&P 500 Gain (Loss)
1	Mid	70.76%	3.17%
2	Micro	37.51%	0.61%
3	Small	32.82%	(2.62%)
4	Large	32.10%	(2.64%)
5	(Unknown)	22.68%	(4.34%)

2. There is a degree of  relationship between ACE'S stocks' capitalization and their performances: Mid-caps' performance is tops (at 70.76% gain) and far superior to the performances of Micro-. Small- and Large-caps. ACE'S Micro-caps came in second place with (12-mo.) gain of 37.51% (vs. the S&P's 0.61% gain); and small- and large-caps are in a virtual tie for third place with (12-mo.) gain of about 32.46% (vs. the S&P's gain of about -2.63%).

3. Table 1 shows -- in reference to the earlier described "conventional wisdom" -- that for ACE'S picks, small-caps do not necessarily have higher gains and that large-caps do not necessarily have lower gains. In actuality, for ACE'S picks, small- and large-caps had essentially the same gains; and the top gainer is neither of the latter two.

4. On the matter of "a basis for preferring one cap over another": The above findings could serve as the investor's basis in preferring one (of ACE'S) cap over another (but not totally excluding -- for a portfolio's cap diversification purposes -- other caps).

A big challenge in profitable stock investing is timing your buys (i.e., knowing at what price it is advantageous to buy a stock). Simply identifying and knowing that a stock is good and buying the stock outright -- without consideration of the stock's "relative price level" -- could subject the investor to higher degrees of downward price movement. It is a most difficult (if not an impossible) task to perfectly time a stock buy. At best, we can devise a method (a set of criteria) to gauge or anticipate an advantageous buy point; apply that method systematically; and hope that the method works at high enough success rate. A method that ACE'S have adopted to tackle this timing problem is the stock's "exponential moving average" ("EMA" for short).

On February 16, 2007, ACE'S started using a stock's EMA in the pick's table of core strengths. ACE'S thinking was that the EMA provides the investor with an objective indication of the market's current "base" valuation of a particular stock. Knowing the stock's (market) base price then, the investor has an indicator on how much a stock's actual price is over or under a particular referential EMA (e.g., its EMA-13, the 13-day exponential moving average or its EMA-50, the 50-day exponential moving average ), and could thus use the particular EMA as the basis for setting the buy point for a particular stock. (SEE: How the EMAs are put to actual use by ACE'S).

How has ACE'S use of EMA's done so far? Does it matter whether an investor buys below or above a stock's EMA price?

As of October 31, 2007 (and since the February 2007 EMA inception), there were 11 picks whose (pick date) closing prices were below their then respective EMA-13s; and there were 21 picks whose closing prices were above their then respective EMA-13s. If we assume, strictly for this study, that we could (and do indeed) buy the subject ACE'S stocks at their then pick date closing prices, we could thus compare the performance of the two groups of stocks' (i.e., the ones bought below and the ones bought above their then respective EMA-13s). How the stocks have performed are shown in Tables A & B below.

FINDINGS:

Table A shows ACE'S picks that were bought at their then closing prices (which were below their then EMA-13 prices). These group of stocks have an average gain of 19.52% for the averaged 4.09 month invested period (or, roughly, a gain of 4.77% per month). Table B shows ACE'S picks that were bought at their then closing prices (which were above their then EMA-13 prices). These group of stocks have an average gain of 8.35% for the averaged 4.29 month invested period (or, roughly, a gain of 1.95% per month).

The tabulations thus suggests that ACE'S picks bought at prices that were lower than their corresponding EMA-13 prices, roughly, have 2.82% point gain/month (i.e., 4.77%/mo. - 1.95%/mo.) better than ACE'S picks bought at prices that were higher than their corresponding EMA-13 prices. The 2.82% point gain/month advantage, for a 12-month period, would be equivalent to 33.84% point gain advantage.

Based on the above findings, there is a relative advantage when an investor buys below a stock's EMA price (as opposed to buying above a stock's EMA price).


A. PERFORMANCE - ACE'S STOCKS W/ PICK PRICES BELOW THEIR EMA-13 PRICES
 

Note: * - indicates that the original pick price was adjusted (to reflect splits and/or dividends).
The prices above shown where extracted from Yahoo's Finance\Historical Price tables.

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B. PERFORMANCE - ACE'S STOCKS W/ PICK PRICES ABOVE THEIR EMA-13 PRICES

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TABLE A PERFORMANCE ~ ACE'S STOCKS W/ PICK PRICES ABOVE THEIR EMA-13 PRICES
Stock Name, (Business sector)	SYM	Pick Dt	Pick Dt Prce	EMA-13 Price	Eval. Dt	Cum. Div.	Eval. Dt Price	Months	% Gain (Loss)
Markwest Hydrocarbons, Inc. (AMEX\Oil & Gas Operations)	MWP	02/16/07	$56.56 $55.85*	$52.42	10/16/07	--	$58.91	08	5.48%
Bon-Ton Stores, Inc. (NASD\Investment Services)	BONT	03/16/07	$55.15 $54.90*	$51.77	10/16/07	--	$20.89	07	(61.95%)
Eastern Co. (AMEX\Auto & Truck Parts)	EML	03/26/07	$27.72 $27.51*	$26.52	10/26/07	--	$19.80	07	(28.03%)
Volvo ADR (NASD\Auto & Truck Manufacturers)	VOLV	04/01/07	$84.07 $15.51*	$82.60	10/01/07	--	$17.74	06	14.38%
Brush Engineered Materials, Inc. (NYSE \ Industrial Metals & Minerals)	BW	04/06/07	$51.78	$49.36	10/06/07	--	$52.32	06	1.04%
Millicom International Cellular Co. (NASD\Communication Services)	MICC	04/13//07	$83.73	$81.35	10/13/07	--	$92.13	06	10.03%
Southern Copper Corp. (NYSE\Mining)	PCU	04/27/07	$82.27 $79.62*	$80.38	10/27/07	--	$136.57	06	71.53%
Partner Communication Co. (NASD\Communication Services)	PTNR	05/07/07	$16.45 $16.08*	$16.33	10/07/07	--	$17.17	05	6.78%
Precision Castparts Corp. (NYSE\Construction Supplies & Fixtures)	PCP	05/11/07	$110.91 $110.86*	$107.89	10/11/07	--	$145.45	05	31.20%
Constellation Energy Group (NYSE\Electric Utilities)	CEG	05/18/07	$94.97 $94.01*	$93.46	10/1807	--	$89.79	05	(4.49%)
LAN Chile ADS (NYSE\Airlines)	LFL	06/01/07	$81.27 $15.96*	$79.91	10/01/07	--	$16.04	04	0.50%
Potash Corp. Saskatchewan (NYSE\Non-metallic Mining)	POT	06/15/07	$77.62 $77.46*	$73.49	10/15/07	--	$109.32	04	41.13%
Deckers Outdoors Inc. (NASD\Footwear)	DECK	06/22/07	$93.91	$93.00	10/22/07	--	$118.47	04	26.14%
Nokia Corp. (NYSE\Communication Equipment)	NOK	07/06/07	$28.92	$28.35	10/06/07	--	$36.53	03	26.31%