The authors found that since 1965 quality U.S. stocks with low debt, high profitability and stable earnings outperformed the market by an average of 0.7 per cent a year. Low-quality stocks – high debt, low profitability and volatile earnings – underperformed by an average of 1.7 per cent a year.
That’s why swinging for the fences with stocks doesn’t work. You get too many strikeouts, and few home runs. Personally, I try to be a singles hitter in investing. It’s doable, both intellectually and financially. . . .
So aim for the middle: take moderate risks, diversify, be realistic, and adjust your portfolio slowly as conditions change. Then you can stay in the game, and compound your returns.