Thursday, October 13, 2011

Eric Falkenstein's and Research Shows that People Pay to take Risk

I have been impressed by Eric Falkenstein's videos. In them he makes a case that because people are trying to out perform or to get rich quick, they drive the price of riskier stocks up so hat there is a cost to taking on high risk rather than a return. That is that higher risk stocks produce lower long term yields than lower risk stocks. This would explain a lot including why people buy the state lotteries and why they like large lottery pots. The implications are that investors should buy the safest stocks that they can find and hold long term.  Low debt, high profit margin, low volitility and low beta boring enterprises like LOW,MCD, PG, KO, PEP, utilities etc. fit the description. .

There are now low volatility and low Beta ETFs to serve people who want to invest this way.  

I highly recommend his videos.  They are free and that just shows that you low risk is free and to take more risk you have to pay.  


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