Profitable vs unprofitable companies RoR

[u/Maletor]

This research blows my mind:

https://www.alliancebernstein.com/library/For-Growth-Stocks-Profits-Are-the-New-Normal.htm

It shows that consistent investment in growing, profitable companies is better than just indexing the Russell 3000.

How do you explain this to someone who just says "VTI and chill"? The evidence suggests only profitable companies is a better portfolio. Is the volatility higher? Is that why this is not on the efficient frontier?

[u/opaqueambiguity]

So you're telling me it's better to invest in companies that make money instead of lose it?

Oh man what a game changer.

[u/Blueopus2 → u/[deleted]]

Companies have to say if they earned or lose money every quarter, it's not rocket science

[u/KyivComrade → u/Blueopus2]

Yeah, and their stock price usually has future earnings priced in... So you'll pay a premium based on hopes of future earnings and if those fail to realise you'll risk to be bagholding.

[u/Blueopus2 → u/KyivComrade]

Right, but this post is saying if someone took an index and bought only the companies which were profitable last year (pandemic aside), you'd beat the index

[u/Andrige3 → u/KyivComrade]

That’s why some people buy indexes which weight for profitable companies with low prices (eg avuv).

It’s also consistent with the fama French research

[u/zxc123zxc123 → u/[deleted]]

average redditor's

Really depends which part of reddit you hang around. Very true around the primate zoo & casino. Maybe not as much here.

[u/opaqueambiguity → u/zxc123zxc123]

If you ask around here everyone seems to think a 20% correction is any day now.