ADAM SMITH: TWO LETTERS TO HENRY BEAUFOY, MP

This article prints two hitherto unknown letters by Adam Smith to Henry Beaufoy (1750-95), MP for Great Yarmouth, concerning legislation that beaufoy and William Pitt had promoted. In the first letter (14 November 1786) Smith comments on changes to existing customs and exicese regulations(26 Geo. III c.49 and c.59), and implicitly takes some credit for legislation concerning the hering fishery (25 Geo. III c.65, 26 Geo. III c.81, 27 Geo. III c.10). In the second letter (29 January 1787) Smith expresses considerable pessimism about the philanthropic proposals of the British Fisheries Society to build fishing villages in the Highlands and Islands of Scotland.     

HOW MANY SMALL FIRMS ARE ENOUGH?

Individual investors are undiversified, holding on average less than four securities in their personal portfolios. The small firm literature focuses on CAPM (systematic risk, full diversification concept) premia, and the actual performance of small firm portfolios held by investors is overstated because of the presence of unsystematic risk. This paper illustrates the magnitudes of total risk for small and large firms, and the behavior of such measures as portfolio size is altered. Small firms contain more risk as shown by the finding that a diversified portfolio of small firms has greater variability than a single, typical large firm. While small firms outperform large firms, investors should be aware of the implications for small firm undiversified portfolios. Because small firms contain large amounts of unsystematic risk, diversification is important if investors are going to capture the small firm premia reported in the literature.