Generic stocks do not possess a reputation, but a lack of reputation should not be confused with low standards
Academics and practitioners have long been stumped by the Neglected Firm Effect. The crux of the anomaly relates to superior returns, adjusted for risk, over an extended period of time with hardly any exceptions! Bizarre as it may sound, there is considerable evidence to show that a diversified portfolio of neglected stocks selected at random significantly outperforms the market. Imagine the possibility of improving the “quality” of the portfolio using a number of simple filters. But before we come to the “bells and whistles”, a number of practical issues come to mind:
(This story appears in the 04 October, 2013 issue of Forbes India. To visit our Archives, click here.)