As an experienced investor, you know that investing in stocks is not just about selecting individual stocks that outperform the market. It's also about building a well-diversified portfolio that can achieve consistent returns over time. One strategy that can help you achieve this goal is factor investing based on fundamental data.
What is Factor Investing?
Factor investing is a strategy in which stocks are selected based on certain characteristics or factors that are expected to influence returns. These factors include, for example, valuation, momentum, quality, and size. By focusing on these factors, investors can build a diversified portfolio that aims to outperform the market in the long term. The strategy is very popular among professional investors and fund managers, but is still largely unknown among retail investors.
Why are Fundamentals Important?
Fundamental analysis involves analyzing a company's financial statements, such as the income statement, balance sheet, and cash flow statement. This way, investors gain insights into the company's financial health, its ability to generate profits, and its potential for future growth.
In factor investing, fundamentals are particularly important. Intuitively, for example, companies with solid balance sheets are less likely to default on their debts, while companies with high dividends are often seen as a sign of financial stability. By using fundamental data in stock selection, investors can improve their chances of selecting companies that outperform the market.
With the stock ratings at Leeway and the systematic evaluations of balance sheets using our artificial intelligence, many indications have been noticed that question the classic interpretations of fundamental data and thus also the significance of fundamental factors. According to Leeway ratings, for example, stocks with high dividends were not a good buy for many years and were a weak point in portfolios. You can find the best stocks according to AI-supported factors in Rank & Screen.
Advantages of Factor Investing
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One of the main advantages of factor investing is that it can help you build a diversified portfolio designed to outperform the market. By selecting stocks based on specific factors, investors can reduce the risk of individual stock picks and build a portfolio that is more resilient to market fluctuations. Our Portfolio Check utilizes these advantages to help you hedge your portfolio against fluctuations and protect it from excessive concentrations in a market segment. Through the factors and their evaluation, the Portfolio Check can evaluate all positions according to growth and value criteria and thus also assess diversification in this segment. At the same time, the factors and thus the portfolio are also objectively evaluated purely based on market behavior.
Another advantage of factor investing is that it can provide new insights into the stock market. By focusing on specific factors, investors can gain a deeper understanding of how different companies operate and what determines their returns. This can lead to better investment decisions and higher returns in the long term.
Conclusion
In summary, factor investing based on fundamental data can be an effective method for improving your stock portfolio. By focusing on specific factors, investors can build a diversified portfolio designed to outperform the market in the long term. So if you want to take your investment activities to the next level and gain new insights, you should incorporate factor investing into your investment strategy.
At Leeway, we have developed adaptive factor investing. Unlike classic approaches that function purely statically, we use artificial intelligence for the identification and evaluation of individual fundamental factors depending on the current market situation. The behavior and preferences of market participants change. In times of low interest rates, different factors work than during highly inflationary phases. The Leeway AI evaluates which fundamental factors are particularly positive or negative for a specific company.
Using the example of SAP, you can view the individual factors free of charge. Under the "Key Figures" tab, you will find the evaluation of the assessment of individual factors by the artificial intelligence. There you can see, for example, what magnitude is optimal for the dividend and at what P/E ratio the stock is actually too expensive.
