Structure determines performance
If guessing and gambling where the market will go is not the best way to invest, what is?
The difference between investing and speculating...
Is in how you apply this formula... do you structure your portfolio based on weightings towards areas of the market that will outperform...
Or, do you take risks that provide no reward?
1) Art of Investing. 1. Diversification does not eliminate the risk of market loss. 1. Relative price as measured by the price-to-book ratio; value stocks are those with lower price-to-book ratios. 2.Profitability is a measure of current profitability, based on information from individual companies’ income statements.
2) Structure determines performance.Source: Dimensional Fund Advisors study (2002) of 44 institutional equity pension plans with $452 billion total assets.Factor analysis run over various time periods, averaging nine years. Total assets based on total plan dollar amounts as of year end 2001.Average explanatory power (R2) is for the Fama/French equity benchmark universe.