Finance

Fresh Thoughts: A Different Way Of Looking At The Risk vs. Return Equation

At Crossword, I picked up “The Intelligent Investor” by Benjamin Graham. I am hooked to the book – Graham’s ideas are as applicable today as they were when he first wrote the book back in the 1950’s. I’d say that a general awareness of finance is required to fully appreciate the text.

Graham offers refreshing viewpoints. For example, here’s the often quoted view on risk vs. return:

It has been an old and sound principle that those who cannot afford to take risks should be content with a relatively low return on their invested funds. From this there has developed the general notion that the rate of return which the investor should aim for is more or less proportionate to the degree of risk he is ready to run.

Graham’s view is:

The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.

Have you ever assumed something to be risky simply because you weren’t motivated enough to gather the knowledge to prove otherwise?

In the past, I have.

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