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Tag Archive: expected returns


The thumb rule that we know higher expected returns are related to higher risk. There have been claims like risk is blogmore than just volatility. Was going through a journal Journal of Portfolio Management, and realized arguing that risk is more than just risk. The term is unnecessarily narrow; securities offer returns for reasons other than risk, as the word conventionally is used.

The four sources of unattractiveness that I came across from the journal:

  • Economic–The common notion of investment risk. The danger that a security might not be able to make required current payments, that these payments might not prove as valuable as expected (as caused, for example, by inflation), or that projected future payments might be less than anticipated. As Ibbotson and Idzorek write, people naturally do not seek these attributes and wish to be compensated for owning them.

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You have some money in your bank. You decided to invest some money in the common stocks. You have reached on blogthis decision as you want to have more income than if you would these funds in other way .History might be irrelevant to most of you but we compare the returns by looking at the past. It’s more fun and interesting to find some excellent companies in the market. Valuations may matter but that’s secondary to identifying the top-notch business. Here are some questions by Philip A. Fisher that will help in identifying the common stock with uncommon profits 🙂

  1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited? Continue reading

History shows that mutual fund investors generally increase inflows after observing periods of strong performance. blogThey buy at high prices when future expected returns are lower, and they sell after observing periods of poor performance when future expected returns are now higher.

This results in what author Carl Richards called the “behavior gap,” in which investor returns are well below the returns of the funds in which they invest. Perhaps with this observation in mind, Warren Buffett once said, “The most important quality for an investor is temperament, not intellect.” Continue reading

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