Recently, you may have heard my voice in live radio sharing about how investors can profit from the stock market safely and consistently. I also share with the public that in books, we often heard that “higher risk, higher risk” and “lower risk, lower return”.
Is it really true? The answer is NO. In stock market, if you are using value investing methodology and have a system, everything is “lower risk, higher return”. Let me provide some examples for you. Lets say ABC is a good business, and you want to buy the business. Right now the stock price is $100 and every year it gives out $5 dividend per share. So in this case, you will have 5% dividend if you buy the business.
However, If the stock price drop from $100 to $50 and you buy at $50 stock price, your dividend yield will become 10% instead of 5%. Isn’t this lower risk with higher returns? Your risk drop from $100 to $50(lower risk). And your return which is your dividend yield grow from 5% to 10%.
I believe this is something that the traditional financial books do not mentioned. Hope all of you take away something from this article.
All the best in your investment journey.