Archive for May 2008
Small cap: is the pain worth the gain?
Posted by: Michael Zhuang on: May 29, 2008
Over the last 60 years, the simple average annual return of the Fama/French benchmark small-cap portfolio* was 16.3%. For the same period, the large-cap portfolio* was only 12.76%. Do you think small cap beat large cap by a wide margin? I put my mathematician’s hat on to find out. Volatility shrinks the return difference The [...]
Volatility: a drag on return
Posted by: Michael Zhuang on: May 16, 2008
In my last article, I explained why volatility does not measure risk. It’s an assertion by none other than Warren Buffet himself. I hope the historical data I used convincingly illustrated the point. If volatility doesn’t measure risk, then what can we learn from it? Let’s look at this simple example. Let’s say you invest [...]
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