What if Dave Ramsey were a quant?
Have you heard the saying, "Low risk, low return?" Stocks that go up and down less than the market have low risk (low beta) and should offer lower returns than high-beta stocks. This is the common-sense relationship between risk and return predicted by the capital asset pricing model (CAPM), which most professionals would use to manage your money. The truth may surprise you. Real-world data contradict CAPM's predictions. A paper titled Country and Sector Drive Low-Volatility Investing in Global Equity Marke
Here's a recent article testing growth ("expensive") stocks and value ("cheap") stocks. The test finds that, very consistently, value has higher returns and lower volatility risk than growth. The U.S. stock market is currently on the expensive side, and stock markets outside the U.S., especially emerging markets , are on the cheap side. A chart taken from the article: There is a lot of academic evidence suggesting that value stocks should be offered as a benchmark to follow. The evidence is so strong that m