definition: Factor Investing — investment strategy in which securities are chosen based on attributes that are associated with higher returns.
Factors Of Higher Returns
- Size: Investing in smaller companies offer higher expected returns than investing in larger companies.
- Value: Value companies (low price/book) offer higher expected returns than growth (high price/book) companies.
- Momentum: Using momentum offers higher expected returns.
Market
“The stock market is a device for transferring money from the impatient to the patient.” Warren Buffet
Value
Nobel Prize winning research shows value stocks have historically outperformed the market by 5% since 1926.
Size
Nobel Prize winning research shows small company stocks have historically outperformed the market by 3% since 1926.
Momentum
Academic research shows momentum based investing can increase returns.
