Time to buy the most rubbish stocks you can find

Subscribe to enjoy similar stories.FINANCE IS PEPPERED with jargon that doesn’t make much sense: “investment-grade bonds” (unlike those other, uninvestible ones), “forward guidance” (as opposed to the backward kind), “convexity adjustments” (translation: your trader wants more money) and so on. Still, it can be exasperating to hear an investment adviser sagely recommend “quality” stocks, as if without their wisdom you would seek out dross.In fact, now is the moment to do just that. An eccentric conclusion to draw, you might think, as the world’s rules-based order breaks down, its dominant superpower attacks enemies with impunity and vital shipping lanes are blocked by war.

Surely such times call for the haven of high-quality stocks?To see why not, start with that jargon. Unlike other, better-defined “factors”—size, value, momentum—quality has only a loose meaning. Investors and academics use it variously to refer to profitability growth, earnings stability, investment patterns, as well as wafflier concepts like corporate governance.

This is unfortunate, for it obscures a useful idea.In 2015 Eugene Fama, a Nobel-prizewinning economist at the University of Chicago, and Kenneth French of Dartmouth College published a paper outlining a narrowly defined “profitability factor”. Getting exposure to this entails buying shares of profitable firms and short-selling unprofitable ones. Perhaps because it seems glib to say that profits are good and losses bad, people started calling the factor “quality” instead.Though today investors differ on exactly which parameters determine a stock’s quality, most agree that they include profits which are high, stable and, preferably, growing.