The 4 Risk Factors

Factor 1. The Stock Market Beats Bonds Rather than
relying on futile forecasting or trying to outguess others, we draw information about expected returns from the market itself—letting the collective knowledge of its millions of buyers and sellers set security prices.

Factor 2. The Size Factor ( Small Cap Stocks Beat Large Cap Stocks)
(Small Cap) A small cap is generally a company with a market capitalization of between $300 million and $2 billion. small-cap stocks tend to outperform those with a larger market cap. That phenomenon is known as the “small-cap premium.”. Small-cap stocks tend to have lower stock prices, and these lower prices mean that price appreciation tend to be larger than those found among large-cap stocks.

Factor 3. The Value Factor
Value investing is the art of buying stocks which trade at a significant discount to their intrinsic value. Value investors achieve this by looking for companies on cheap valuation metrics, typically low multiples of their profits or assets, for reasons which are not justified over the longer term.

Factor 4. Profitability Factor
More profitable firms deliver stronger returns even despite higher valuation ratios. It is defined by the annual revenues minus the cost of goods sold, expenses, selling, general, and administrative expenses, divided by book equity.


Factor 2. The Size Factor (*)

Large Company

Small Company

Factor 3. Value Factor over the last 96 Years

Factor 4. Profitability Factor