I think todays US stock market circumstances favor medium-sized companies over their larger brethren.

Several reasons:

large stocks have outperformed smaller ones for the past several years

historically, the relationship between PEs for large and smaller cap stocks is all over the map.  One reason for this is that large and small seem to take turns having multi-year runs as the focus of investor interest.  At present, there looks to me to be no overall price advantage for either group.  Not the most ringing endorsement for small, but at least valuations dont appear stretched

large stocks are more likely to have exposure to Europe, where currency weakness is wreaking havoc on the results in US dollars of operations there.  Smaller companies are more likely to be predominantly focused on the US, where growth is better and just now reaching down to second-tier firmsand currency isnt an issue

brokerage house analysts, who are a notoriously bullish lot, have been reducing their earnings estimates for 2015 sharply, based on 4Q14 earnings reports and managements forward guidance.  Much of the decline is due either to energy or currency, where analysts should arguably have done a better job.  Still, the picture thats emerging for 2015 from Wall Street is of flat-to-barely-up earnings per share for the year.  This implies to me that portfolio managers will be willingeager, actuallyto give a hearing to niche companies they havent needed to bother with until nowprovided they can show, say, 10% eps growth.

As a result, in looking for new individual stocks, Ive been shifting my eye toward smaller cap names (also toward te h, but thats another post).

One caveat:  my experience is that small cap is a catchbasin for a class of perennially weak companies that manage to stay in business, but who are unable/unwilling to create earnings growth.  These may also be highly illiquid.  These can be interesting targets for seasoned value investors with long investment horizons.  The rest of us should stay away.

Investment managers subject to SEC regulation (meaning basically everyone other than hedge funds) must file a quarterly report with the agency detailing significant changes in their portfolios.  Its called a 13-f.  Today Berkshire Hathaway filed its 13-f for 4Q14.  I cant find it yet on the Edgar website, but there has been plenty of media coverage.

Mr. Buffett has built up his media and industrial holdings, as well as adding to his IBM.  The more interesting aspect of the report is that it shows him selling off major energy holdingsExxonMobil, which he had acquired about two years ago, and ConocoPhillips, which he had been selling for some time.  Neither has worked out well.

Theres also a smaller sale of shares in oilfield services firm National Oilwell Varco and a buy of tar sands miner Suncorboth presumably moves made by one of the two prospective heirs working as portfolio managers at the firm (whose portfolios are much smaller than Buffetts.  Buffett has told investors to figure smaller buys and sells are theirs.)

Three observations:

the Buffett moves would have been excitingmaybe even daringin 1980.  Today, they seem more like changing exhibits in a museum.

if I were interested in Energy and thought it more likely that oil prices would rise than fall, Id be selling XOM, too.  After all, its one of the lowest beta (that is, least sensitive to oil price changes) members of the sector.

But Id be buying shale oil and tar sands companies that have solid operations and that have been trampled on Wall Street in the rush to the door of the past half-year or so.  That doesnt appear to be Mr. Buffetts strategy, however.  His idea seems to be to cut his losses and shift to areas like Consumer discretionary. (A more aggressive stance would be to increase energy holdings by buying the high beta stocks now, with the intention of paring back later by selling things like XOM as prices begin to rise.)  NOTE:  Im not recommending that anyone actually do this stuff.  Im just commenting on what the holdings changes imply about what Mr. Buffetts strategy must be.

early in my career, I interviewed for a job (which I didnt get) with a CIO who was building a research department for a new venture.  I was a candidate because I was, at the time, an expert on natural resources.   The CIO said the thought there were three key positions any research department must fill:  technology, finance and natural resources.  All require specialized knowledge.    Id toss healthcare into the ring, as well.  Id also observe that stock performance in these more technical areas is influenced much less by the companies financial statements than is the case with standard industrial or consumer names.

Mr. Buffett is an expert on financialshe runs a gigantic insurance company, after all.  On tech and resources, not so much, in my opinion.  Financials are the second-largest sector in the S&P 500, making up 16% of the total.  Tech makes up 19.5%; Energy is 8.3%; Healthcare 14.9%.  The latter three total 42.7% of the index.  As a portfolio manager, its hard enough to beat the index in the first place.  Being weak in two-fifths of it makes the task even harder.