July 2008 Roundtable Part I

It’s halftime for the stock market.

As the financial and housing crises came to a head, the first six months of the year were enveloped in waves of lackluster economic and corporate news, sending small-cap equities into a tailspin. After a volatile first half, the Russell 2000 is limping forward, down 7.4% year-to-date. While winter turned to spring, Wall Street remained entrenched in frozen assets.

For some half-time analysis (edited by Crystal D. Vogt), SmallCapInvestor.com reporter Jennifer Schonberger interviewed six experts who specialize in small caps to gauge their opinions of the market and small caps for the next six months. Our panel of experts include Mary Lisanti, president and chief investing officer of AH Lisanti Capital Growth; Jim Oberweis, president and lead portfolio manager of Oberweis Asset Management; Bryant Riley, founder and managing member of Riley Investment Management and founder and chairman of brokerage firm B. Riley & Co.; Tom O’Halloran, director of Small Cap Growth Investments at Lord Abbett; Brad Evans, portfolio manager of the Heartland Value Plus Fund and the Heartland Value Fund for Heartland Advisors; and Ian Wyatt, Chief Investing Strategist for SmallCapInvestor.com.

Many original thoughts were brought to the forefront. The good news is everyone’s bullish and small caps are ripe for the picking if you’re selective. Headwinds remain, but our experts appear optimistic, as they think small caps are properly positioned to buck adverse macro trends due to their swift ability to adapt. Some are more bullish on growth versus value. Speaking of value, valuations are cheap as stocks have been knocked down from their highs. Also, the idea pervades that as the global economy slows, global investors will look to deploy capital in U.S. small caps for superior returns. And a look back at history leads some to the possible path the future may bring. (This is part one of a five part series.)

Here’s what our experts had to say:

What did you think of the first six months of this year?

Lisanti: “I was a little surprised at how hard the down-draft was — January through the middle of February where everything just went down. I was sort of surprised it happened then.

“First I thought the market had overreacted. But for a while I have felt that we were in this slo-mo environment of basically 0 to 2% GDP growth and that it was going to be 0 to 2% GDP growth for years — I’d say five years, it could be 10, depending on the policy. The reason is because if you go back and look at the ’70s and the ’90s, it takes years to clear up housing problems. The last housing crisis was in the early ’90s.  “It’s what happens every 15 years. I don’t know why people don’t remember this. The one before that was in the mid-’70s. If you go back and look at . . .

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