Learning points from this book:
- In the long-run (the author used data of US traded stocks over 86 years), low-volatility stocks are shown to give a higher return.
- Comparing portfolios of varying volatility – as volatility increased from 13% to about 20%, compounded return increased. As the volatility increased further beyond 25%, compounded return declined.
- How to select the right low-volatility stocks? Look at
- Beta less than 1
- the stock’s income yield and
- momentum (price trend)
- People who underreact to news when it comes in gradually run the risk of being ‘boiled’ (boiling frog syndrome).
- The selection of low-volatility stocks can be applied to other investment vehicles as well e.g bonds …