The Myth of Risk for Return
April 15th 2007 13:02
We have all been told that for a return on investment there is a risk, and that for a higher return there is an equally higher risk.
I have never heard anything so misleading. I am convinced that it is our generalised gambling inclinations that make us accept such an idea.
In fact, when gamblers’ stakes are high, they stand to gain much or to lose much. It is the assumption that the stock market is a casino that leads to the acceptance that you need to run high risks in order to make some good money. Nothing could be farther from the reality.
As a matter of fact, if you know how to look for value, there are a lot of good, settled business with wonderful cash flows which from time to time become available at decent prices.
But the people who gamble hard always think that, if they take risks they would probably not take with their own hard-earned money, they stand to earn a lot. In fact, they seldom do.
But they then push this idea down to you so that you accept to put your money in high risk business, responsibility free.
I invite you to look into the investments of Warren Buffett. He always bought extremely profitable companies for bargain prices and never run a risk.
Why would you ever think high-risk, high-return? As a matter of fact, I am convinced that low-risk, high-return is way to go.
I have never heard anything so misleading. I am convinced that it is our generalised gambling inclinations that make us accept such an idea.
In fact, when gamblers’ stakes are high, they stand to gain much or to lose much. It is the assumption that the stock market is a casino that leads to the acceptance that you need to run high risks in order to make some good money. Nothing could be farther from the reality.
As a matter of fact, if you know how to look for value, there are a lot of good, settled business with wonderful cash flows which from time to time become available at decent prices.
But the people who gamble hard always think that, if they take risks they would probably not take with their own hard-earned money, they stand to earn a lot. In fact, they seldom do.
But they then push this idea down to you so that you accept to put your money in high risk business, responsibility free.
I invite you to look into the investments of Warren Buffett. He always bought extremely profitable companies for bargain prices and never run a risk.
Why would you ever think high-risk, high-return? As a matter of fact, I am convinced that low-risk, high-return is way to go.
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