You do not need to take big risks to beat the market. This post introduces the Conservative Formula, a simple, data-backed strategy that targets calm (low volatility), stable stocks with strong momentum and generous payouts. Over 23 years, it delivered impressive returns with less stress (low drawdowns) - especially during crashes. You will learn the exact rules, see the backtested results, and discover how to apply the Conservative Formula in under 30 minutes per quarter. If you want a reliable way to grow your money without chasing hype or losing sleep, this strategy could change how you invest - forever.
Estimated Reading Time: 7 minutes
Can You Beat the Market Without Big Risks? The Conservative Formula That Delivers Quiet Power
You have been told that investing success requires big risks. That to get higher returns, you must ride out big swings and accept gut-wrenching losses.
But what if that was wrong?
What if the best-performing stocks were not the flashiest, fastest, or most talked about, but the quietest?
The Conservative Formula is a strategy designed for just that. It targets stocks with low volatility, strong price momentum, and generous shareholder payouts. It is a calm, disciplined way to earn great returns, without chasing fads or gambling on hype.
A major 2024 research paper Formula Investing by Marcel Schwartz and Matthias X. Hanauer both from the Technical University of Munich put this strategy to the test using 23 years of U.S. market data. In this post, you will see exactly how the Conservative Formula was tested, how well it performed, and how you can use it in your own portfolio, even if you only invest a few times a year.
The results?
Remarkably strong performance, especially during market crashes. If you want to grow your money with less stress, this might be the system you have been searching for.
What Was Tested?
The study examined how the Conservative Formula performed from January 2000 to December 2022. That is 23 years, covering bull markets, bear markets, crashes and bubbles.
It tested the strategy in its pure form:
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Every quarter, it ranked stocks by three traits: low volatility, high momentum, and high net payout yield (Shareholder Yield).
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Then it picked the top 40 stocks and held them for three months.
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No news. No forecasts. No emotion. Just the investment ideas and discipline.
This is the kind of strategy that gives you peace of mind and real results.
What Was Included and What Was Left Out?
The study focused on U.S.-listed common stocks traded on the NYSE, NASDAQ, and AMEX. These are liquid, reliable markets where most investors invest.
Here is what they left out:
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Microcap stocks—the bottom 20% by market cap—were excluded to avoid illiquid, high-risk names.
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Financial companies were excluded even thought this formula is based on stock prices and shareholder payouts so it works across all sectors.
This makes the strategy realistic for anyone managing their own money. You do not need to hunt obscure stocks or worry about hidden risks. The companies this formula picks are usually familiar, stable, and widely traded.
How the Research Avoided Mistakes
The researchers followed a strict, real-world process to make sure the results were trustworthy:
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They used point-in-time data from CRSP and Compustat—the same sources used by serious institutional investors.
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A six-month delay was applied to all accounting data, so nothing was included that investors would not have known at the time.
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Portfolios were rebalanced quarterly; to simulate real investing behaviour and make sure the ideas always reflected the strategy.
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Capped value-weighting was used to keep one or two big stocks from skewing the results.
Everything was done to remove bias and reflect how you would use this strategy with your own money.
How the Conservative Formula Strategy Works
You can run this system in four simple steps, even if you have no background in finance.
Don't worry if these calculations look intimidating. The Quant Investing stock screener does everything for you.
All you must do is load the strategy we already saved for you, add your own preferences such as countries and minimum daily traded value. After saving the screen you can run it as often as you like with four mouse clicks.
Step 1: Rank Stocks by 3 Key Signals
For every stock in the universe, calculate:
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Volatility
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Measure the standard deviation of price returns over the past 36 months.
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Lower volatility = higher score.
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Momentum
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Measure the total price return over the past 12 months, excluding the most recent month.
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Stronger momentum = higher score.
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Net Payout Yield (NPY)
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NPY = Dividend Yield + Net Buyback Yield (Shareholder Yield)
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This captures how much cash the company returns to you.
Each company gets a ranking for all three indicators.
Step 2: Combine the Rankings
Add the three ranks together for each stock. The lowest total score wins, these are the companies that are stable, rising, and rewarding their shareholders.
Step 3: Select the Top 40 Stocks
Pick the 40 best-ranked companies. These are the ones you will buy and hold for the next 3 months.
Step 4: Rebalance Quarterly
Every three months:
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Update your data.
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Sell any stock that drops out of the top 40.
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Replace it with any new stocks that make the list.
Repeat every quarter. It is that simple.
Click here to start finding your own Conservative Formula ideas NOW!
Why Rebalancing Every Quarter Works So Well
Rebalancing four times a year gives you the perfect balance:
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You stay up to date with the most recent performance.
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You avoid frequent trading and the costs that come with it.
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You give each stock time to perform without reacting emotionally.
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The companies in your portfolio always closely matches the strategy
For you, that means spending just 30 minutes per quarter managing your entire portfolio, without stress or second-guessing.
How the Conservative Formula Performed
From 2000 to 2022, the Conservative Formula delivered:
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11.4% average annual return
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Sharpe Ratio of 0.78 – a lot higher than the market
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CAPM Alpha of 5.8% – meaning it beat the market after adjusting for risk
Even better? It had a much lower drawdown than the market during market crashes. So, it protected your money when it mattered most.
Annualised Returns, Sharpe Ratios, and Drawdowns for Each Formula
Sharpe Ratio measures risk-adjusted returns (higher is better).
Max Drawdown shows the worst peak-to-trough decline.
CAPM Alpha measures how much a strategy outperforms (or underperforms) the market after adjusting for risk. It tells you whether an investing strategy provides returns that cannot be explained by general market movements.
Source: Formula Investing
Yearly Returns from 2000 to 2022
The following table shows long only annual returns of the 40 top-ranked Conservative Formula stocks. The portfolios were rebalanced quarterly with value-weighted position sizing capped at the 80th percentile of the NYSE stocks market value.
Market returns are the value-weighted returns of all stocks in the final stock universe. The back test period is 23 years from January 2000 to December 2022.
Source: Formula Investing
Note: I retyped the table and did not get the same values in the research paper. This may because of rounding errors.
When It Shined and Why That Matters
This strategy was a quiet winner across most of the last 23 years, but it really stood out during tough times:
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Dot-com crash (2000–2002) – protected capital while others lost big.
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Financial crisis (2008) – held up better than the market and most value or growth strategies.
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COVID crash (2020) – stayed calm while other strategies panicked.
Even when value strategies stumbled like during the 2018–2020 value slump this strategy remained stable and dependable.
Click here to start finding your own Conservative Formula ideas NOW!
Why It Works (Even Though It Sounds Too Simple)
The Conservative Formula wins by doing three things well:
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Avoiding drama – Low-volatility stocks tend to lose less in downturns and grow more consistently.
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Riding strength – Momentum ensures you are investing in companies already moving in the right direction.
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Getting paid – Net payout yield means you are rewarded with real cash, either through dividends or share buybacks.
It also has low market beta. That means it moves less when markets swing wildly, ideal if you are building long-term wealth with peace of mind.
Is the Conservative Formula Right for You?
This strategy is a great fit if:
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You want good returns without losing sleep at night.
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You prefer logic and rules to gut feelings and media noise.
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You value steady gains over roller-coaster rides.
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You want a portfolio that you can manage on your own, without complexity.
If you are nearing retirement, want to protect your capital, or just hate volatility, this is one of the best systems you can follow.
Final Thoughts: The Power of Calm, Repeatable Investing
The Conservative Formula is not loud. It does not make headlines. But it quietly delivers the kind of results that matter, solid gains with less downside.
It rewards discipline. It avoids hype. And it gives you a system you can follow for decades without second-guessing yourself.
👉 Want to use the Conservative Formula in your own portfolio?
The Quant Investing screener includes all three key signals, low volatility, momentum, and net payout yield (Shareholder Yield). You can filter global stocks in seconds and build your strategy with confidence.
Sign up fro our FREE demon screener to start your FREE trial today and build a smarter, calmer investment plan.
Click here to start finding your own Conservative Formula ideas NOW!
FREQUENTLY ASKED QUESTIONS
1. Can I really beat the market without taking big risks?
Yes, you can. The Conservative Formula uses calm, low-risk stocks to earn strong returns. It focuses on three things: low volatility, strong momentum, and high shareholder payouts. This helps you grow your money while avoiding the big drops that hurt most investors.
2. What kind of stocks does this strategy pick?
It chooses quiet winners—stocks that move steadily (low volatility), are already trending up, and reward shareholders with dividends or buybacks. These are usually large, stable companies, not risky small-cap or flashy growth stocks.
3. Do I need to check the stock market every day?
No. This strategy is designed for people like you who want results without daily stress. You only need to check and update your portfolio once every three months. That is just 30 minutes per quarter.
4. What if the market crashes again?
This system held up better than the market during the dot-com crash, the 2008 financial crisis, and the COVID panic. It avoids the worst drops because it avoids the most volatile stocks.
5. I do not know how to calculate volatility or momentum. How do I start?
You do not need to do any calculations. Just use the Quant Investing stock screener. It already ranks stocks by volatility, momentum, and shareholder yield. You load the saved strategy, press a few buttons, and get your top 40 picks.
6. What makes this different from just picking stocks that pay high dividends?
High dividends can be risky if the company is not stable. This formula adds two more filters: low volatility and strong momentum. So you are not just getting cash, you are getting companies with low risk and good growth.
7. Is this a good strategy for retirement investing?
Yes. If you want to protect your money and still grow it over time, this strategy works well. It is ideal if you hate big ups and downs and want a system you can trust without worrying every day.
Click here to start finding your own Conservative Formula ideas NOW!
