One question almost every investor asks at some point is whether it is possible to achieve above market returns by selecting a diversified group of stocks according to some formula, rather than having to evaluate each stock from every angle. There are obvious advantages to such a formulaic approach. For the individual, the amount of time and effort spent caring for his investments would be reduced, leaving more time for him to spend on more enjoyable and fulfilling tasks. For the institution, large sums of money could be deployed without having to rely upon the investing acumen of a single talented stock picker. Many of the proposed systems also offer the advantage of matching the inflow of investable funds with investment opportunities. An investor who follows no formula, and evaluates each stock from every angle, may often find himself holding cash. Historically, this has been a problem for some excellent stock pickers. So, there are real advantages to favoring a formulaic approach to investing if such an approach would yield returns similar to the returns a complete stock by stock analysis would yield.
Many investment writers have proposed at least one such formulaic...
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