Strategies · Core
Gross Profitability Strategy
Long high gross-profits-to-assets names and short low — Novy-Marx profitability as a quality factor.
Definition
Gross profit / assets (or a close cousin). Long high, short low, often independent of value so you can run a quality-value barbell. Cleaner than bottom-line earnings for many sectors.
Why it matters
It resurrected quality as a first-class factor and explained some of value’s misses.
Case
A high GP/A retailer with collapsing SG&M discipline. Gross profit is not free cash flow. Still a better first sort than net income.
How to read it
Sector treatment (banks), and whether you orthogonalize to value. Report both legs.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- The Other Side of ValueNovy-Marx · 2013 · Journal of Financial EconomicsGross profitability.
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