On Second Look, OC’s Little Guys Beat the Big Caps in ’99
Ah, numbers. You can do so much with them.
Last week, our front page story on how our two Cruttenden Roth stock indexes performed in 1999 came to the conclusion that the OC Billion-Dollar Club, the index of the county’s stocks with market caps of $1 billion or more, easily outperformed the index of the smaller-cap stocks, the OC 100.
The 14 companies currently comprising the Billion-Dollar Club saw their stocks surge a collective 97.1% in 1999. By contrast, the 100 stocks currently comprising the OC 100 went up a mere 3.3%. Calculated this way, the Billion-Dollar Club out-performed every broad stock market index in sight in ’99, including the roaring Nasdaq, while the OC 100 out-performed none of them.
Our conclusion was correct, but our methodology is open to debate.
Cruttenden Roth updates the OC indexes periodically during the year, as new companies go public and as some companies’ changing fortunes move them up to or down from the Billion-Dollar Club. Thus, companies that finished 1999 in the Billion-Dollar Club or in the OC 100 aren’t all the same ones that started the year there. And there’s the rub.
By deciding to calculate the 1999 results by using the companies that currently comprise the two indexes, we introduced “success bias” into the equation. This is especially so since the two indexes are weighted, meaning the companies with the biggest market caps have the biggest impact.
So the OC 100 got stuck with several big-cap stocks that fell below the $1 billion threshold during the year because of declining stock prices,CKE Restaurants, First American Financial, Nationwide Health Properties and Health Care Properties Investors Inc. Their stocks declined in 1999 anywhere from 22% to 80%.
The Billion-Dollar Club, meanwhile, benefited from the addition of several rising stocks that graduated from the OC 100 during the year,Emulex Corp., QLogic Corp. and Powerwave Technologies. Emulex was up an incredible 1,025% in 1999, QLogic and Powerwave were up 388% and 213%, respectively.
The success bias in our calculation was spotted by several readers, beginning with this paper’s publisher, Richard Reisman.
So, let’s crunch the numbers again, only this time putting the companies in the indexes in which they started 1999. Now, the results turn out much differently.
The recalculated OC 100 was up 61.7% in 1999. The recalculated Billion-Dollar Club was up “only” 37.9%. So the little guys win.
And while both OC indexes outperformed the Dow Jones Industrial Average, which was up 25.5% for the year, and the Standard & Poor’s 500, up 19.5%, they both trailed the pace-setting Nasdaq, which rose 85.6%.
(The Billion-Dollar Club’s recalculated results include Quest Software, which became a club member as soon as it went public during the year. Quest went up more than 600%, and thus did much to offset the club’s big losers.)
However you choose to measure the OC indexes, though, the other thrust of last week’s story remains intact: As with the stock market in general, OC’s big winners in 1999 were heavily weighted toward companies in the field of communications technology. n
