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But I would say for most investors, absolute return with complex strategies are unneccessary. Simply go for low volatility investments where you can reinvest.
As the focus of the article goes, the secret to superior returns is the effect of compounding. Most investors neglect to choose stocks that they can reinvest whereas the legendaries reinvest the dividends in superior stocks over and over again.
Sure, you can catch a 50% spike up but after you sell, what are you going to still invest in?
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Most folks here annualized more than 8%. A number reaching 15% or more. Clearly beats low-risk investments despite up and down.
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Hmmm...
I think the word low-risk is misleading. It is investor-dependable more than product/company dependent...
Eg. Is a solid blue chip company low risk? Not if u pick it at high prices and u panic when bear comes... Is small companies risky? While the forum is littered with threads of smaller companies but look at forummers' returns here. Most can shame fund managers
life goes in cycles, predictable yet uncontrollable; just like the markets, but markets give you a second chance
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Beauty is in the "Eyes of the Beholder." Is Risks & Rewards" any difference? So there is a Market for almost anything in financial products?
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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Hardly. Risk in finance term commonly refers to volatility. Compounding does best when the shares have low volatility. That's what it means.
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arriyana - agree with you that the principle of compounding works best with low volatility.
the problem is this: a priori, we can only make a best guess what is a low volatility bet. a blue chip should fit the bill, but a blue chip that goes down (think Kodak, IBM in bad old days, K-Mart, etc) will create massive volatility in your portfolio, agree? To put things another way, current volatility in stock market is super low, so in theory you could write put options and collect good premium and basically have almost no volatility in your return… until the bottom falls out and you have a huge volatility year that wipes out most of what you have before.
in any case, risk does NOT only mean volatility. permanent capital loss/loss in intrinsic value is a better definition for the purposes of what most guys in this forum do.
low risk, in my opinion, is a question of common sense. and margin of safety provides the best measure of that.
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In fact because of volatility of the stock market, many are attracted. For the same reason, many abhor. And which group like a Bear market? Which group likes a Bull Market?
Me? i like both extremes of the market. But i can't wait till it really happens at both end. Greed and Fear do not allow me the luxury to wait.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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I think low risk or high risk is very subjective.
From my personal point of view, none of my family members have any serious stock investment. Only one uncle, my mother's sister husband play stocks with highly unpredictable results. He buy/sell based on broker/news/feelings and not after detailed fundamental analysis. After decades, he admitted last CNY to us that he was only slightly in the black. But his wife has been nagging at him, both stock involvement as well as buying 4D.
My father, mother, wife and father in law too, do not trust stocks. They all said that I am gambling and suggested that I buy more houses instead. I told them that stocks has risk, its true, but to me its low risk, because I am able to use my knowledge to mitigate this risk. To them, its just numbers, and these numbers might go up or come down beyond people's control. My wife even said to me that so far I am lucky in my gamble, my luck might turn against me one day and that I should take profits while I can.
Haha. Looks like if my counters ever turn out to be a loser, I will likely have to surrender all my money to my wife for safekeeping. Thinking of the above made me re-analyse and double reanalyse my fundamentals and re-calculate my downside before entering. On hindside, good that this made me extra cautious before I made any purchases, since now my stock portfolio has snowball to become not an insignificant figure in my overall wealth and even allowed me to think about retirement.
So in summary, I think risk is really subjective and depends on to who. We might think its low risk but others might beg to differ. Low risk because we have the knowledge to hedge against this risk.
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can u share ur protfolio here Gautam, I can learn from it, I am still a noob in this value investing
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