You work as an analyst at a discretionary equity hedge fund. You have the investment thesis that it pays to buy the best in breed, that is, stocks that are the industry leaders. You find the companies that are currently the largest in each industry and track their performance the last 5 years. This portfolio significantly outperforms the market over the time period. Are there any issues with this analysis?

Group of answer choices This analysis is correct and implementable because the largest stocks are very liquid.

This analysis is flawed because the size of the firm includes both equity value and debt value.

This analysis is flawed because 5 years ago you did not know which stocks would be the largest in their industry today.

This analysis is correct. However, the strategy is hard to implement because the industry leaders have high exposure to macroeconomic risk which is hard to diversify away.