The economy, like society, is becoming too polarized - opinion

• Published date: 07 October 2021
• Author: AARON KATSMAN
• Publication title: Jerusalem Post, The: Web Edition Articles (Israel)

Maimonides (Hilchot Daot 1:3-4) comments on man's optimal behavior: "The two extremes of each trait, which are at a distance from one another, do not reflect a proper path. It is not fitting that a man should behave in accordance with these extremes or teach them to himself. If he finds that his nature leans toward one of the extremes or adapts itself easily to it, or if he has learned one of the extremes and acts accordingly, he should bring himself back to what is proper and walk in the path of the good. This is the straight path."

He continues, "The straight path: This [involves discovering] the midpoint temperament of each and every trait that man possesses. This refers to the trait that is equidistant from either of the extremes, without being close to either of them. Therefore, the early sages instructed a man to evaluate his traits, to calculate them and to direct them along the middle path, so that he will be sound."

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Just like with behavioral perfection, we need to strive to search out the middle path when it comes to investing. The one asset class is often forgotten as part of an investment portfolio is mid-cap stocks. These stocks tend to fall between the cracks. Just like in politics, investors like extremes. They tend to focus on well-known household names, which tend to be the largest companies in the world, large caps and small caps known for their high growth potential.

AS I HAVE quoted in the past, Jon K. Christensen, CFA, portfolio manager, and senior research analyst at KAR writes, "The lines between market-cap categories can be blurry, leading many investors to believe that owning both large and small stocks provides sufficient exposure across the market-cap spectrum. In fact, data point to a clear underrepresentation of the asset class. Mid caps make up about 26% of the overall equity market, according to a breakdown of the Russell indexes, but actual investments into the asset class only account for about 13% of all invested assets, as represented by Morningstar asset flows."

This lack of investor attention has been unfortunate, as mid-cap stocks tend to boost return and lower risk. In recent research, Touchstone Investments reports, "Mid-cap stocks are uniquely positioned between small, developing companies and large, mature companies. Mid-cap companies are...