The Motley Fool Discussion Boards

Previous Page

Investors' Roundtable / Rule Maker Companies


Subject:  Re: Zeke's risk/reward table Date:  1/9/2000  7:57 PM
Author:  TMFTribe Number:  5137 of 8329

Nit 2 (major): Under Value Investing the Risk factor should be listed as Low. The whole point of "value" investing is to find companies selling significantly below their actual value.

I think you need to look at Risk in two different ways:

1) The risk that you will lose a significant portion of your investment. Obviously, I think a company that is already trading below what is deemed its "intrinsic" value would have a much lower risk value in this category than a high-flier growth stock like Yahoo or Qualcomm.

2) The risk that your investment will underperform the market. Just because a stock is deemed to be "undervalued" doesn't mean that the market will ever change its attitude towards that stock in the near future. It is quite possible that the stock could be undervalued for a long stretch of time, thus putting you way behind the market average return. Just look at the performance of the value stocks (such as the Foolish Four) over the past few years when compared with the technology-oriented growth stocks (like MSFT, CSCO, etc.) It really isn't a pretty sight.

I think this is a significant risk with value stocks, and for that reason I think the categorization of their inherent risk as MEDIUM is probably justified.

Fool On!

the LanceMan

Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us