With the debate of value vs growth investing in focus for some time, we thought to look at the same problem through the lens of quantifiable data. An approach lent to the investing community by Stephen A. Ross in 1976 through Arbitrage Pricing Theory, made a case for explaining the stock returns through multiple factors. Now, factors are quantifiable characteristics of the linked company that can explain the differences in stock returns. Some of the well-known factors are size, value, momentum, growth, and quality.

Value and size have existed in the literature for several years now. In our case we attempted to look at other factors that have been relatively less exploited in the arsenal of available investment products in the market. Out of these, we zeroed on momentum, quality and growth. The premise for momentum is simple, the stocks making the new highs will continue to do so for some time. For growth, the aim is to select the companies experiencing good growth in terms of revenue and earnings. Quality acts as an additional security system to keep the debt level and capital employment in check to avoid the unfortunate fate if things go south. With this framework in mind, we finalized the parameters and thought of letting the data do the rest of the talking.

Interested in diving deeper into our findings and methodology? Visit my main blog here to explore more in-depth analysis and insights.