High Returns from Low Risk: A Remarkable Stock Market Paradox by Pim van Vliet and Jan de Koning
I am always keen to consider and understand new investment strategies. Exposure to a wide range of views and opinions is an important factor in allowing me to continue to deliver robust financial advice. I am therefore pleased to have taken time to read High Returns from Low Risk.
Heavy with paradox, I think overall the text is aimed at the do-it-yourself investor who is comfortable and confident to make longer term investment choices with the aim of re-investing income/returns to achieve effective/rewarding compounding – indicated as the eighth wonder of the world. This in itself is no issue and there is no doubt that the title concept and text are engaging.
The assertion that low risk stocks are unloved by the investment professionals to avoid falling foul of benchmark returns is of note, but not one I would agree with, especially when taking into account the diverse range of investments now available. I balance this statement with the tortoise-and-hare investment analogy, which I do agree with, that investment should normally be for the longer term. It is not a sprint – more a marathon – and holding firm for the longer term is usually worthwhile.
The points with regards to long term volatility – and subsequently beta – are interesting and are important to those considering investment; as is the issue of diversity within the holdings maintained, either directly or through an investment professional. The middle of the book moves on to self-trading and screening, before looking at the alternative of using professional services and their associated virtues, costs and ongoing monitoring. This leads to some of the varying techniques and actions that can be employed to achieve the preferred outcome expected, that is, high returns from low risk.
Am I a convert? The author promotes the virtue of remaining sceptical, and I will do so. However, he comments that "being aware of something allows you to start seeing it everywhere". A smile beamed from me at an investment presentation I attended as I came to the end of my review, when this very topic appeared and was promoted. "Will the paradox persist?" is one of the final points raised in this book, looking at the future of the stock market. Maybe I will take another look.
Keith Churchouse is a chartered financial planner and author of Sign Here, Here and Here! Journey of a Financial Adviser