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Companies that invest conservatively tend to outperform aggressive spenders.
The investment factor, formalized by Fama and French in their 2015 five-factor model, captures an empirical finding: companies that grow their assets aggressively tend to underperform those that invest conservatively. This is the "conservative minus aggressive" (CMA) factor.
The intuition is straightforward: aggressive asset growth often signals empire-building, poor capital allocation, or overinvestment at peak margins. Conservative companies that generate strong returns without requiring massive reinvestment are more capital-efficient — they compound shareholder value rather than chasing growth for growth's sake.
This factor aligns with Warren Buffett's preference for businesses with "high returns on invested capital" — companies that can grow earnings without proportionally growing the asset base. It penalizes firms that dilute shareholders through excessive stock issuance or acquisitions.
Our investment score measures capital efficiency and fundamental momentum using four metrics, each percentile-ranked within sector peers:
• Asset Growth inverted (40% weight) — Year-over-year total asset growth, the core CMA signal from Fama-French (2015). Lower growth = higher score.
• CapEx Intensity inverted (25% weight) — (EBITDA - Free Cash Flow) / Total Assets, measuring reinvestment burden. Lower intensity = higher score.
• Revenue Momentum (20% weight) — Quarter-over-quarter revenue growth, capturing fundamental acceleration (Ball & Brown 1968 post-earnings-announcement drift). Higher momentum = higher score.
• Revenue Growth inverted (15% weight) — Year-over-year revenue growth, penalizing unsustainable top-line expansion. Lower growth = higher score.
Revenue momentum is included here rather than in the Momentum factor to keep price-based and fundamental-based signals separate, following AQR's methodology. Investment receives a 10% weight in our composite.
Fama, E. & French, K. (2015)
“A Five-Factor Asset Pricing Model”
Journal of Financial Economics
Hou, K., Xue, C., & Zhang, L. (2015)
“Digesting Anomalies: An Investment Approach”
Review of Financial Studies
Titman, S., Wei, J., & Xie, F. (2004)
“Capital Investments and Stock Returns”
Journal of Financial and Quantitative Analysis
The investment factor measures how conservatively a company grows its asset base. Companies that invest efficiently — generating strong returns without aggressive capital spending — tend to outperform. This is the "CMA" (Conservative Minus Aggressive) factor from Fama-French.
Aggressive asset growth often signals poor capital allocation — empire-building acquisitions, overinvestment at peak margins, or shareholder dilution. Conservative companies compound shareholder value more efficiently by maintaining high returns on incremental capital.
Warren Buffett famously prefers companies with high returns on invested capital that can grow without requiring proportional asset growth. The investment factor systematically captures this preference — rewarding capital efficiency and penalizing wasteful spending.
We use four metrics: Asset Growth inverted (40%), CapEx Intensity inverted (25%), Revenue Momentum (20%, quarter-over-quarter revenue growth), and Revenue Growth inverted (15%). Asset growth, capex, and revenue growth are inverted (lower = better), while revenue momentum rewards fundamental acceleration. This separates price-based signals (in Momentum) from fundamental-based signals (here).