5 Dec Getting good returns without too much risk

5 Dec Getting good returns without too much risk

What is risk? The conventional definition of risk in finance literature is price volatility.

But to super-investor Warren Buffett, risk is the permanent loss of capital.

Unless you need to cash out at very depressed market levels, or the investments or stocks/companies you own have no more capacity to recover, price volatility is just noise in the market, says Mr Buffett.

On the other side, what is return?

Return to an investor is the income you get from your investment, as well as the rise in the price of the investment.

Of course, you'd want to be able to get back at some point the entire sum of the capital you put in as well.

How does one get good return from an asset?

Well, the more cheaply you can acquire a good asset, the higher your return will be.

Your dividend yield is higher, your capital appreciation is higher.

Next question.

When you get a good asset cheap, what are the chances of you suffering a permanent loss of your capital? Small.

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