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Subject:  Four Pillars of Investing Date:  1/5/2005  7:16 PM
Author:  activeREinvestor Number:  43894 of 78696

The books keeps coming up as a must read for people getting started with investment.

As I was curious I checked out Amazon. One nice thing about Amazon is your can browse a bit including checking out the table of contents, etc. Similar to going to the bookstore and reading a bit.

There is a quote from the first chapter that I wanted to raise here. Both because it is 'common wisdom' that it is correct and because it is 'professional wisdom' that it is false in some cases.

The book says The one thing that stands out above all else is the relationship between return and risk. Assets with higher returns invariably carry with them stomach-churning risk, while safe assets almost always have lower returns."

How can you argue with the statement.

Yet when people do study the market there are ample ways to show that risk and returns are mispriced. The simplest one was when a student studied the premium on junk bonds and discovered that the risk premium was in excess of what was needed to compensate for the actual defaults. The student went on to re-invent junk bond investing and helped to improve the efficiency of capital allocated to busines