March 2 (Bloomberg) -- Whenever a skilled tradesman points out flaws in his own wares, it's time to pay attention. Candor of that kind is something you don't run across every day. So any investor caught up in the recent boom in small- company stocks might listen with both ears to what the manager of a prominent small-stock mutual fund has to say. ``Small-caps have outperformed large-caps now for almost five years, and such cycles rarely last for more than six years,'' says Jack Laporte, in his 17th year at the helm of the $5.2 billion T. Rowe Price New Horizons Fund. ``We are clearly in the latter stages of this cycle,'' Laporte writes in the fund's just-published annual report. He doesn't stop there. ``Small-cap valuations are no longer at their usual discount to large-caps,'' he says. The aggregate price-earnings ratio of the 200-plus stocks that New Horizons holds closed out 2003 at 28.1 to 1. That's ``the highest level in decades with the brief exception of the 1999-2000 bubble period,'' Laporte writes. That same P-E ratio, calculated from estimated earnings for the next 12 months, was 1.57 times the P-E of the Standard & Poor's 500 Index, a market measure dominated by large stocks. Except for a short spell in 1996, that's the highest it has been in two decades.
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