Research identifies “factors” or “characteristics” of securities that produce higher expected returns. With the advent of more robust data and computing power, many factors have been identified.
However, there are only a few that you should focus on; factors you can trust must be:
Sensible. The underlying logic is evident. It should make intuitive sense.
Persistent across time. When you examine the data, the factor produced positive results over different intervals.
Pervasive across markets. If the factor explains how markets work, it should hold true in the United States, other developed countries, and emerging economies.
Evident regardless of how you measure it. Trustworthy factors should be evident using various measurement criteria.
Cost-effective to capture in well-diversified portfolios. If it is too costly to implement, the benefit of the strategy can be offset by these costs.
Find out more about the evidence-based approach to investing in my book, The Money and Meaning Journey, available through most major retailers, including Amazon: bit.ly/3HopIdu.