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38 Locavesting
recognition that there is a steep cost to carbon-based fossil fuels, and
that cost will increasingly be imposed on its biggest users.
At the same time, thanks to the Internet, it is easier and cheaper
than ever for small businesses to broaden their customer base.
And what about returns? Many investors assume double-digit
stock market gains over time, but the reality may be quite different.
Volatility has skyrocketed and, in a bubble-fueled environment,
big run-ups are likely to be followed big sell-offs. Many experts say
that mid-single digit returns are a more realistic expectation for the
years ahead—making the modest returns offered by some smaller
companies more competitive.
Here’s one more data point: While large- cap stocks turned in
a negative performance for the decade ended in 2010, the S&P 600,
a small- cap index, actually gained an average 7.1 percent per year. 3
Local Companies Are Less Risky Than You Might Think
There is a strong perception that small companies and startups are
extremely risky—that’s the reason, after all, the SEC created such
high hurdles for these companies to raise money from ordinary
investors. But do they really pose such hazards? Sure, there is no
guarantee they will survive or thrive. As noted, only half of new businesses
last longer than fi ve years (although not always because they
failed—the statistics refl ect the natural fl ux of self- employed people
moving back into the job market). But every behemoth, from Apple
to Procter & Gamble, was once an ambitious startup. And there are
also plenty of established businesses with strong track records—
companies like Wolfgang Chocolates in York, Pennsylvania, and
Storm Smart in Fort Myers, Florida—that are poised for growth.
Larger companies may have the resources to better weather
a downturn, but size no longer guarantees safety, if it ever did. Who
would have thought that Lehman Brothers, a 158- year- old investment
fi rm that had just had logged its most profi table years, would
vanish virtually overnight? Or that Arthur Andersen, a global consulting
company founded in 1913, would be dissolved in disgrace
after the envy- inducing profi ts of one of its clients, Wall Street
darling Enron, were revealed to be phony? At least you can rest
easier knowing that a local business probably isn’t dabbling in highly