Let’s define “popular” as being liked or admired by the general public. One might reasonably think that popularity is a good thing, right? But when it comes to investing, research shows popularity often comes with lower returns.
This correlation can sometimes result in a conflict with traditional economic theory, where risk and expected return should be positively related.
Not surprisingly, and consistent with traditional economic theory, investors dislike risk. Thus, riskier assets generally have higher returns. For example, riskier stocks have provided higher returns than safer bonds, riskier small stocks have provided higher returns than safer large stocks, and riskier long-term bonds have provided higher returns than safer short-term bonds.
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