Investment

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Investment ideas and discussion.

Peter Lynch reckons 8% per annum is a good result that you should be happy with for your portfolio – do you agree?  Most people who are investing want more than 8%, that could be incorrect most people investing don’t even have a rate of return goal!   They just want the maximum they can get, the issue with the most or the maximum is that it is only known once the results are in and can only ever be proven with hindsight and you will never be satisfied.

Is the mentality of getting above average market returns similar to the mentality of winning the largest prize on the slot machine or poker machine, are these people gambling?  Have they not calculated the real odds of their expectations of higher than average market returns being met?

Are you one of these people?  I know as a younger man this is exactly how I thought, bigger risk equals bigger reward.  The only problem is that there is a bucket load of luck that comes with the bigger reward and when it comes to accumulating money or wealth its often better to take the slow and steady approach and let the compound interest effect do its work.

Buffett’s first rule is don’t lose money.  And the second rule is see rule number one.  Basically don’t erode your capital base, losing 50% initially means you then have to get a return of 100% to break even.  Its a good rule to remember.

By definition if you are willing to take risk then you are gambling but this is not how good fund managers actually think.  The most extreme example is Buffett who says you eliminate risk, what I don’t understand is how you buy stock from someone who knows that there is no risk in this stock increasing in value in future but somehow Buffett convinces them to sell?!