Ever since the 1960s, the capital asset pricing model (CAPM) has been something like a bible for most investors… It was an unquestionable “North Star” that tied everything in the belief system together.
And CAPM spent decades upholding its status as finance’s most sacrosanct law … before, of course, being completely disproven.
See, CAPM essentially says there is a positive linear relationship between a stock’s volatility and its expected future return. The more volatile the stock … the higher its expected future return.
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