The simple chart presents the Fama-French risk premiums over the last ten years. The first column is the market risk premium over the risk free rate. The second column is the advantage of small cap over large cap stocks. The third column is the value over growth premium and the last column is the risk free rate of return.
Holding equities was a winning strategy in every year except 2008. The small cap and value premiums are smaller and more volatile but will provide value over the long-run. It is surprising that the small cap and were not larger for 2013. Large market premiums do not mean large premiums for other factors. Just holding the market basket was the real winner. You did not have to be cute or overly thoughtful last year, but by any measure last year was an exception not the norm for equity investing. Do not beleive that last year was a normal trend.
Holding equities was a winning strategy in every year except 2008. The small cap and value premiums are smaller and more volatile but will provide value over the long-run. It is surprising that the small cap and were not larger for 2013. Large market premiums do not mean large premiums for other factors. Just holding the market basket was the real winner. You did not have to be cute or overly thoughtful last year, but by any measure last year was an exception not the norm for equity investing. Do not beleive that last year was a normal trend.
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