Wednesday, August 7, 2013
Educating myself
I have been reading the book The Intelligent Investor as a start for my investment education. I do not understand a lot of the terms but found the following paragraph interesting: "The exact opposite is true with value investing. If you buy a dollar bill for 60 cents. it's riskier than if you buy a dollar bill for 40 cents, but the expectation of reward is greater in the latter case. The greater the potential for reward in the value portfolio, the less risk there is." (page 547,The Superinvestors of Graham-and-Doddsville by Warren E. Buffett). So it seems that the risk reward trade-off has a new interpretation here in the school of value investing; lower risks may accompany great rewards at the same time!
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Hi Bluepore,
ReplyDeleteIndeed, value investing advocates low risk/high returns. In fact, if you do get 100% return of capital, the risk is negligible. (can't say its ZERO as some may argue that the profits still on the table is considered at risk)
Hi Matthew, thank you for your very first comment on my blog. Yes, I agree and do hope that the market will offer us more low risk /high returns investment opportunities (perhaps when Fed eases the bond buying program?). In any case, I can afford to wait and, in the meantime, discuss and learn from more seasoned investors like yourself!
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