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John Dorfman: 4 small stocks that look like undiscovered gems

For a long time, academics and investors were convinced that small stocks outperform large ones. The theory was that small stocks, because they carry greater uncertainty, sell at a discount to large ones. Investors in the small fry are rewarded for taking extra risk. Proving the theory was difficult. Many early studies suffered from survivorship bias. They failed to include some small stocks that ultimately went bankrupt. One way to look at the issue is to compare the return on the Standard & Poor’s 500 Index (which contains 500 large stocks) with the return on the Russell 2000 Index (made up of 2,000 smaller stocks).

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