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Yet, I'm still very optimistic about the coming year, even though conventional wisdom says we shouldn't be. Looking back over the last several years at small-cap, mid-cap, and large-cap value stock performance, there's one clear trend.....that none of them were consistent leaders, nor consistent laggards. After 20 years of applying this strategy, your portfolio would have produced returns that topped basic indexing by 20 to 40 percent.

So, that said, which value group is in the middle so far this year? The S&P 500 Value index is down by 3.0 percent YTD, the S&P 400 Value index is up by 1.9 percent YTD, and the S&P 600 Value index is down about 0.5 percent YTD (yeah, it's been a pretty ugly year across the board). Since last October of 2004, the S&P 500 Value Index is up by 7.9 percent, the S&P 400 Value index is up by 15.8 percent, and the S&P 600 Value index is up by 13.5 percent.

It's hard to believe, but the end of 2005 and the improvisation of 2006 is just not far the corner. I'm hesitant to say that the year's been uneventful - it's been very eventful. But as far as investors are concerned, let's just say it's been unfruitful. The Dow, the NASDAQ, and the S&P 500 are all in the red for they year. And while there's still time left for the market to end the year on a positive note, it's not going to be a big win like 2004 was.....not even close.

Yet, I'm still very optimistic just about the prophesied year, even though conventional wisdom says we shouldn't be. As of right now, we're facing a third major hurricane in the gulf, and even though this one isn't threatening the oil industry quite as much as Katrina and Rita did, Wilma is targeting the berry industry, as well as the bulk of Florida's tourism areas (fortunately we're in the slow period for vacationing). Oil is just off of all-time highs too, and inflation is persistent. So what's to look forward to? There are a few opportunities I see on the horizon. Of course, you have to know how to handle it. But then, that's day and night the case.

Unfortunately (or fortunately, depending on your point of view) I won't be able to detail everything in this overview space today. It will probably take a couple of weeks to really lay everything out the way I see it happening in 2006. The outlook involves sectors, styles, and even crosses borders. For today, I'd just like to look at a few market stake and style (growth versus value) strategies we'll be using for our money management clients in the very near future.

To put this strategy into simplest terms, all good things come to an end. Or to put it no such thing way, what goes up must come down. There are manifestly as for a hundred ways to say it, but they all mean the same thing - things change. As for the market's pockets of strength, they equal too. Interestingly, rather not surprisingly, the market's next strong pockets are reasonably predictable.

Being mostly value-seekers, our interest is stronger in value prospects than it is in so-called growth stocks. Looking back over the last several years at small-cap, mid-cap, and large-cap value stock performance, there's one on the loose trend.....that none of them were consistent leaders, nor consistent laggards. While they all generally moved in the same direction, all of them ostensible top honors again the same number of times. All of them were also at the salt marsh of the mountain an equal number of times.

So what's that got to do with picking a market-cap-based value group for the following year? A lot. The one you want to pick for the drawn to year is the one that fell in the middle of the three in the previous year. Depending on the particular index you use, on average, you'd outperform the teeny-bopper market among 1 and 2 percent each year. If you're wondering why (and I hope you are), the pure premise is simple - the top performer's best days are usually none too soon it, while the bottom-feeder may have serious problems that can't be resolved in a year. That leaves the middle-performing index as the one that still has some untapped potential, but isn't suffering for other reasons.

Not worth the trouble? Think again. in virtue of 20 years of germane this strategy, your portfolio would have produced returns that topped aboriginal indexing by 20 to 40 percent.

So, that said, which value group is in the middle so far this year? The S&P 500 Value index is down by 3.0 percent YTD, the S&P 400 Value index is up by 1.9 percent YTD, and the S&P 600 Value index is down up and down 0.5 percent YTD (yeah, it's been a pretty ugly year facing the board). Based on these results so far, are we really willing to think close upon small-cap value as one of our core holdings for 2006? Well, yes, and no. The floor is 'yes' with respect to the methodology, even though the year has been a little stale. But the squelch is 'no' for two reasons. First, the year isn't over yet, and a lot can happen in two months. The second reason is just that these tepid results may not be distinct enough to really separate the three groups.

To all-out war that second problem, let's take a look at how these same indexes did over the last 52 weeks. thereon all, market trends don't have to wait on the calendar. Since last October of 2004, the S&P 500 Value Index is up by 7.9 percent, the S&P 400 Value index is up by 15.8 percent, and the S&P 600 Value index is up by 13.5 percent. If those rankings seem familiar, it's now it's the same order of performance that we have year-to-date....and the small-caps are still in the middle. That sure makes it a lot easier to attribute the strategy now, so, we're earlier shopping for an entry point.

This is particularly exciting, being as how we have an inherent bias for small-cap value anyway. Historically, it's been the markets best-performing segment.

On the flipside, don't interpret this as a complete portfolio solution. Our small-cap value holding, once we're in it, will be a core piece of our pie, but there are a lot of other ingredients we want to add. One such piece will be a style and market-cap based holding designed to contrast the small-cap value position. That means it could be a growth investment, and it will definitely be a large-cap or mid-cap position (note that were not opposed to holding two value-based indexes). Though, it will probably not be as big of a stake as our small-cap value position is.

That's enough for now. We'll look at other strategies and ideas in future articles, so be on the lookout for those.

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