Elysium wrote: ↑Fri Sep 25, 2020 4:59 pm
000 wrote: ↑Fri Sep 25, 2020 4:51 pm
Is it possible SCV is less risky and thus offers a negative risk premium relative to total market?
1. Small stocks have less management concentration risk, i.e. 10 CEOs versus 1 CEO of the same 10 Corporations merged together.
2. Small stocks have less risk of being trust-busted.
3. Value stocks have less risk of speculative business ventures failing, i.e. most are in established industries.
4. Value stocks have less risk of being caught up in investor mania, i.e. "margin of safety" concept.
Maybe the SCV premium found in past data was not because of higher risk, but because of all the failures of speculative business ventures bid up by investors. Now with mature tech/internet, the failure rate of such highly bid ventures is less.
I don't think any of that holds true. Value companies are risky, if in doubt just look at the debt rating.
Which of these two large cap lists has more risk of business failure?
1. Berkshire Hathaway, Johnson & Johnson, Procter & Gamble, UnitedHealth, JPMorgan Chase, Verizon, Disney, Intel, Merck, AT&T.
2. Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Visa, Mastercard, NVIDIA, Home Depot.
Which of these two small cap lists has more risk of business failure?
1. Coupa Software, EPAM Systems, Horizon Therapeutics, Teladoc Health, Zebra Technologies, Catalent, Zillow, Insulet, Etsy, Teradyne.
2. Peloton Interactive, IDEX, PerkinElmer, Atmos Energy Corp, Booz Allen Hamilton, Generac, Brown & Brown, RPM International, Molina Healthcare, Avalara.