You know, it saddens me to see people writing something like this:After employing sophisticated adjustments for risk, we find that Berkshire's high returns can not be explained by high risk. First, this sentence is assuming that volatility is risk, always a very silly proposition, but let's just ignore it and replace the word "risk"with the word "volatility" in the statement.The bigger issue is the fundamental idea of CAPM that you can't getexcess returns without taking on excess volatility, which is sothoroughly disproved as an idea that I'm embarassed for them.Quite aside from any theoretical argument (there are lots of elegantdisproofs of CAPM), it's just plain demonstrably false empirically:higher volatility stocks do not have higher average returns, so the whole concept, though cute in a 1960's ivory tower sort of way, is just plain annoying now. In fact, higher volatility stocks have lower average returns, so the whole darned thing is backwards when lookingat the equity asset class, and always was.Risk is probably more meaningfully measured as the probability-weightedmeaningful loss of capital. i.e., losing your money. The best way toavoid that is to buy things selling for less than their intrinsic value.End of rant, sorry.Jim
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra