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Boston-based asset manager GMO recently looked at risk and return data for U.S. stocks from 1970 to 2011, and what the researchers found is surprising: The riskiest 25 percent of stocks—those most vulnerable to swings of the broad market—logged an average annual return of just over 7 percent per year. The least-risky 25 percent of stocks returned 10.6 percent per year. On a $10,000 investment over those four decades, the lower-risk stocks would have yielded more than $450,000.
Seems like big blue chips with dividends reinvested back in like KO, MCD, PFE, etc...have generally made nice gains over the past 40 years with less risk than the small caps. Of course there are GM's too!
I'd agree that long term, slow and steady wins the race every time. Buy quality stocks when they're on sale, hold long term, and reinvest your dividends. Over the long term, you'll outpace all the shiney, high P/E growth stocks that they like to gush over all day on CNBC. I call it my get rich slow plan.
I'd agree that long term, slow and steady wins the race every time. Buy quality stocks when they're on sale, hold long term, and reinvest your dividends. Over the long term, you'll outpace all the shiney, high P/E growth stocks that they like to gush over all day on CNBC. I call it my get rich slow plan.
Seems like big blue chips with dividends reinvested back in like KO, MCD, PFE, etc...have generally made nice gains over the past 40 years with less risk than the small caps. Of course there are GM's too!
It makes perfect sense. Risky stocks are exactly that, risky meaning most will end up failing or underperforming, especially over the long-run. Risky stocks are meant to be TRADED, not long-term investments, so this isn't new information.
Seems like big blue chips with dividends reinvested back in like KO, MCD, PFE, etc...have generally made nice gains over the past 40 years with less risk than the small caps. Of course there are GM's too!
Yes, I have some thoughts.
First this is old, old news. This is known as the "low volatility anomaly." Portfolios with low volatility, low risk stocks tend to perform better than high volatility portfolios. There have been a great many studies over the past decades which have consistently shown that high risk, high volatile stocks will underperform the market.
Second, why do so many investors and even professional money market managers seem to be surprised by the latest studies? Why do they then just continue on speculating on high risk stocks? Why do they think they are going to beat the long term odds? I cannot answer those questions. Instead I just put the whole lot of them into the category of people who are smart and self confident but behave like idiots.
First this is old, old news. This is known as the "low volatility anomaly."
Portfolios with low volatility, low risk stocks tend to perform better than high volatility portfolios.
There have been a great many studies over the past decades which have consistently shown that
(in the long term) high risk, high volatile stocks will under perform the market.
why do so many investors and even professional money market managers seem
to be surprised by the latest studies?
They don't think long term.
Quote:
Why do they then just continue on speculating on high risk stocks?
They sellers earn commissions on sales. The buyers need to think they're geniuses.
Quote:
Why do they think they are going to beat the long term odds?
Again, they don't think long term.
Quote:
I cannot answer those questions. Instead I just put the whole lot of them into the
category of people who are smart and self confident but behave like idiots.
That's true enough... but it still misses the point.
volatility and risk are not the same thing. the natural cycle of markets rising and falling is volatility. that has done well. betting the ranch that some biotech firm will have an ebola drug approved is risk. risk had done poor.
you will see the two terms used to mean the same thing but they are very different.
in fact risk and volatility swap places at different times. a decade ago bonds were not risky although they had some volatility , today they have alot more risk and not alot of volatility..
The prime group example of this are gold mining stocks: they are extremely volatile and underperform the market l/t in a major fashion. It's about time somebody tells the goldbugs about this anomaly.
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