Hi,
I have read Boglehead threads somewhat discussing this topic, but none so explicitly I think. However, if I'm wrong, and this thread is redundant, feel free to post links to threads that I may have missed.
I just want to make sure I understand at least at a high level what the current market research shows about small cap value stocks?
This is what I understand about Boglehead investing at a very high level:
1) Stock markets are efficient, and all known information about a stock is already priced in by the time the average person reads about it in the news. This is why we don't single pick stocks.
2) Thus, the best portfolio is based on passive index investing, at least from the stocks side (active vs passive arguments for bonds are more debated but my focus is on stocks). Let the market dictate when to buy and when to sell.
3) However, research from Fama and French shows that there is a small cap value premium not priced in the capital asset pricing model and efficient market hypothesis? This is noted in various sources, starting from Fama-French academic papers and have been slowly disseminated by authors via books or Youtube videos, all usually citing the same papers.
I think I'm not thinking logically enough about this; here's my question:
If everything is "efficiently priced," hasn't the small cap value premium already been priced into the stocks that have been identified as such?
Thanks for everyone's help.
I have read Boglehead threads somewhat discussing this topic, but none so explicitly I think. However, if I'm wrong, and this thread is redundant, feel free to post links to threads that I may have missed.
I just want to make sure I understand at least at a high level what the current market research shows about small cap value stocks?
This is what I understand about Boglehead investing at a very high level:
1) Stock markets are efficient, and all known information about a stock is already priced in by the time the average person reads about it in the news. This is why we don't single pick stocks.
2) Thus, the best portfolio is based on passive index investing, at least from the stocks side (active vs passive arguments for bonds are more debated but my focus is on stocks). Let the market dictate when to buy and when to sell.
3) However, research from Fama and French shows that there is a small cap value premium not priced in the capital asset pricing model and efficient market hypothesis? This is noted in various sources, starting from Fama-French academic papers and have been slowly disseminated by authors via books or Youtube videos, all usually citing the same papers.
I think I'm not thinking logically enough about this; here's my question:
If everything is "efficiently priced," hasn't the small cap value premium already been priced into the stocks that have been identified as such?
Thanks for everyone's help.
Statistics: Posted by Macaroni2314 — Sun Dec 01, 2024 6:25 am — Replies 13 — Views 438