"Superior investors make more money in good times than they give back in bad times."
- Howard Marks
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
- George Soros
Worried about market fluctuations? Consider the Low Volatility factor.
In the world of factor investing, avoiding volatility has become one of the most important investment considerations. Investing in equities with the lowest volatility is the essence of low volatility investing. But how is it beneficial? Analogy from the field of cricket will be examined now.
It goes without saying that the most interesting batsmen to watch are those who have the highest strike rates. However, the sad truth is that very few of these exciting batters are reliable scorers or have high career batting averages.
Similarly, the most thrilling stocks are frequently those that rise and fall extremely dramatically. But only a small percentage of these consistently perform over time and market circumstances. The low volatility aspect comes into play here.
It's one of the easier investment criteria to use because it can be determined quickly using only the stock price across time and relative to other stocks. Also, volatility characteristics of stocks have been found to be consistent and slow to change.
Low Volatility
Low volatility stocks aren't the most interesting stocks to invest in. Their secret to making money isn't how quickly or far they rise, but how slowly they fall. They typically produce the best volatility adjusted returns, even if they don't always produce the best returns.
