Is investing by factor a good idea? Stocks can be described in many different ways, but common descriptions include labels such as Value, Quality, Momentum, Small Cap, Defensive, Cyclical, High Dividend, Minimum Volatility, and Multi-Factor. It should come as no surprise that each of these has a strong following among different groups of investors. Let’s deal with the definitions first. Those in the Value group have low price-earnings ratios. The Quality group leans toward the major companies that are the foundations of the U.S. economy. Momentum stocks are those with above average price performance over the latest six and 12 months. Small Cap stocks are those of smaller companies, which tend to grow more quickly, but are more susceptible to downturns in the economy. Defensive stocks are those of companies whose products and services are essential (think Procter & Gamble). Cyclical stocks are those of companies whose progress tends to go through boom-and-bus
Investment and economic observations by N. Russell Wayne, CFP, MBA. Mr. Wayne is the president of Sound Asset Management, inc. and former Managing Editor of The Value Line Investment Survey.