In a CNBC interview, William Greiner, chief investment officer of UMB Asset Management had said that small cap stocks are the best place to be for this recessionary period. He goes on to say that small caps have done well in the past 10 recessionary environments. If you need to bounce back from this recent down market, look to buy some small cap stocks.

If you believe in having a diversified portfolio, you will probably have at least one of each market cap size. If you don't have a diversified portfolio and want sizable returns, small cap stocks can yield greater returns. Historically, the average annual return for a portfolio of the smallest 20% (market cap) of stocks listed on the NYSE is 17.4%. The 17.4% return of small stocks clearly outperform the 12.3% average annual return of the S&P500. Of course, the volatility of a small stock portfolio will be higher than that of the large cap S&P 500.

The common definition for small cap is from $250 million to $1 billion in market cap. Set up a stock screener for Small Cap or Market Cap= $250 million to $1 billion with reasonable growth rates. EPS growth rate should be 10-25% annual. ROE should be 10% or larger. Be weary of companies with abnormally large growth rates, and always check the financials of the company to make sure they are stable. Some stocks I got from the stock screener were ULTI, HNR, and ESEA; a diversified group of companies. The companies are The Ultimate Software Group (ULTI)- a business software company, Harvest Natural Resources (HNR)- an oil and gas operations company, and Euroseas Limited (ESEA)- a Greek dry bulk shipping company, respectively.