Building on the underlying concept of factor investing, we’ve already explored the Value Factor and now it’s time to look at the Size Factor.
What is the Size Factor All About?
Think of the investing universe as a zoo, where companies come in different shapes and sizes. Some are powerful lions, while others are nimble squirrels. Surprisingly, smaller companies sometimes outpace larger ones in the long run. That’s the essence of the Size Factor – the magic of being small. Smaller companies have the potential to grow faster and more dynamically than their larger counterparts.
Why Should I Care About Size?
Imagine having two pots of plants: one with a big, mature plant and the other with tiny seedlings. While the big plant looks impressive, the seedlings have incredible growth potential. Similarly, smaller companies are nimble, adaptive, and quick to seize new opportunities. Investing in smaller companies is like planting seeds in your garden. You nurture them, and as they grow, they have more room to multiply and surprise you with their growth.
Investors who focus on the Size Factor seek out smaller companies with potential for growth, which may be overlooked by others due to their size. However, investing in smaller companies can come with increased risk.
The Size Factor involves factor investing by combining factors such as Value and Size to create a strategy that aligns with your goals. Investing in small companies may seem risky, but history shows that these underdogs can outperform their larger counterparts.
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