And the paradigm for stock-picking changes again.

The Wall Street Journal reports that investors are getting excited about a new financial measure called "gross profitability" or "quality." Apparently, the measure appears to identify companies that will earn even more money in the future. New funds are launching based partly on it, the newspaper says.

"Great ideas come along maybe once every 20 years or so," David Booth, chairman of Dimensional Fund Advisors in Austin, Texas, which manages more than $262 billion, told Journal columnist Jason Zweig.

The newspaper notes that in research soon to be published in the Journal of Financial Economics by Robert Novy-Marx, a finance professor at the University of Rochester, bargain-priced "quality" stocks outperformed the overall market by more than four percentage points annually between 1963 and 2011.

"This stunning margin is even higher than that earned over the same period by traditionally measured cheap "value" stocks, but usually with less severe losses in market downturns. Quality also tends to do well when value does poorly—and vice versa," writes Zweig.

Read more in the WSj. 

Edited by: Tommy Fernandez


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