Pursuing a Successful Investment Experience
STEP 4: CONSIDER THE DRIVERS OF RETURNS
Academic research has identified dimensions which point to differences in expected returns. Investors can use this information to pursue higher expected returns in their portfolios without having to predict which specific companies will outperform.
Source: Dimensional. Relative price is measured by the price-to-book ratio; value stocks are those with lower price-to-book ratios. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Diversification does not eliminate the risk of market loss.