Steven Romick at FPA has just put out a great paper called, Two Decades of Winning by Not Losing. It’s a great illustration of how you can outperform in the stock market by avoiding the worst performing stocks.
Here’s an excerpt from that paper:
Thanks to the accelerated increase of passive investing – now around 40% of the U.S. market – I’m confident that there will be a period when it will look really easy to beat a benchmark – followed by another time when, again, it won’t.
This academic argument against active investment is fundamentally flawed because it’s built on a false premise, which holds that only the best performing stocks will drive returns. The argument doesn’t consider the other side…. A maxim I’ve taken to heart….
If you avoid the worst performing stocks, you can still put up good numbers.
You can read the complete paper here.
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