Harnessing Empirical Finance in Long-Term Investing Strategies with Dimensional’s Savina Rizova
Excess Returns
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How Do You Measure Profitability?
You mentioned profitability which i think you've used in your investment process since 2012. We started as you mentioned uh the research and then implementation of profitability in 2012 after an academic paper by Rev. Nori Marks highlighted that actually profitability could be a meaningful driver of expected stock returns just like value and size. From there we basically method a lot of metrics going from the top to the bottom of the income statement bottom meaning net income before extraordinary let's say divided by book or assets and what we found is the generally profitability whether you focus on the top middle or towards the bottom ofthe income statement you see that premium associated with more profitability.
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