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High Returns from Low Risk: A Remarkable Stock Market Paradox Hardcover – Illustrated, January 17, 2017
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From the Inside Flap
If you lie awake at night worrying about your retirement, paying for your children's schooling or your general financial security, High Returns from Low Risk is your solution to a sound sleep. This unique wealth management guide is written by a fund manager who oversees billions of dollars in portfolio assets, and who wants to share his approach with individual investors, advisors, bankers and everyone interested in the stock market. Despite all the appeal exciting stocks have, his evidence-based strategy repeatedly proves low-risk stocks historically beat high-risk ones going back well over eighty years. By how much? Over eighteen times the returns!
Growing wealth doesn't have to be stressful, and it shouldn't be risky when you get High Returns from Low Risk.
'The low-risk effect, that is the idea that historically, unlike many well-known theories, average return across stocks doesn't appear to go up with most standard measures of risk, is one of the most important "anomalies" in modern finance. Pim van Vliet is one of the pioneers in studying this effect and using it to improve investor portfolios. Anyone interested in systematic equity investing should carefully read this important book.'
--Clifford S. Asness, Founder, Managing Principal and Chief Investment Officer at AQR Capital Management, USA
'Pim van Vliet's experience as one of the pioneers of low-volatility investing gives him unique insight into one of the most fascinating economic anomalies of our time. The idea that risk, properly defined, generates a positive return, is one of those ideas that becomes even more profound when we learn it is not true. There is no cosmic risk karma that pays people for taking risk, and this book will help people understand what types of investment risks generate premiums, and which will actually cost you money.'
--Eric Falkenstein, Author of The Missing Risk Premium: Why Low Volatility Investing Works, USA
From the Back Cover
'Pim has been a pioneer in turning academic insights on the low-risk equity anomaly into a multi-billion investment portfolio. This book presents his magnum opus in a clear and powerful way. It's definitely a worthy read.'' ―Gerben de Zwart, Head of Quantitative Equities, APG Asset Management, The Netherlands
EVIDENCE-BASED INVESTING EVERYONE CAN UNDERSTAND
For generations, investors have believed that risk and return are inseparable. But is this really true? In High Returns from Low Risk, Pim van Vliet, Founder and fund manager of the multi-billion dollar Conservative Equity funds at Robeco and expert in the field of low-risk investing, combines the latest research with stock market data going back to 1929 to prove that investing in low-risk stocks gives surprisingly high returns, significantly better than those generated by high-risk stocks.
Together with investment specialist Jan de Koning, he presents this counterintuitive story as a modern upbeat stock market equivalent of 'the tortoise and the hare'. This book helps you to construct your own low-risk portfolio, select the right ETF, or find an active low-risk fund in order to profit from this paradox. It also explains why investing in low-risk stocks works and will continue to work, even once more people become aware of the paradox. It's also a personal story, one that links our human nature and behavior to a prudent and successful investment formula. High Returns from Low Risk provides all the tools one needs to achieve excellent, long-term investment results.
'I loved reading this book. It's educational, humble, funny and philosophical; quite rare attributes for a financial book. In today's world, where individuals will have to take more and more responsibility for their savings, this book serves a need: providing sound and pragmatic advice about how to manage one's savings. Furthermore, this book puts forward an inconvenient truth about investment that is close to my heart: more risk doesn't necessarily mean more return. On the contrary, it is sound and proactive risk management that permits investment portfolios to have sustainable long-term returns.'
―Fiona Frick, CEO, Unigestion, Switzerland
'Explaining a financial theory to a broad audience is no easy task, and refuting one of the oldest and best known investment theories―higher risk for higher returns―harder still. But Pim (and Jan) manage to convince the reader in this easy-to-read and accessible book of their approach. They not only explain low-risk investing, but offer readers a whole set of investment (and even life) lessons at the same time. I would recommend that every investor read this book. It may not turn all readers into low-risk investors, but it certainly will offer valuable insights into the risk/return question.'
―Ronald van Genderen, CFA, Manager Research Analyst at Morningstar, The Netherlands
- Item Weight : 12.3 ounces
- Hardcover : 164 pages
- ISBN-13 : 978-1119351054
- Product dimensions : 5.7 x 0.7 x 8.6 inches
- Publisher : Wiley; 1st edition (January 17, 2017)
- Language: : English
- Best Sellers Rank: #800,747 in Books (See Top 100 in Books)
- Customer Reviews:
Top reviews from the United States
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The author’s criticism of other investment research the states simple or average returns, while theirs includes compounding, is unfair. Most of the research I’ve seen always has compounded annual growth rates (CAGRs). They also claim the investment world only cares about risk relative to a benchmark. Yes, we care about underperforming a benchmark, but we are also very aware of drawdowns, risk-adjusted returns, VaR and absolute returns. No one likes losing money.
Additionally, the authors combine this low-risk philosophy with a value approach and momentum. I would have like to see more on the effect that valuation and momentum had. This might have indicated that its not just risk that makes a difference, but being sensitive to value and following a trend. So I was left with many questions.
The book also portends that investment paradoxes are everywhere and that low risk beat high risk over long time periods. But why then do high-risk small-cap beat large caps over very long time periods? Why do higher risk emerging markets top developed markets? This was not addressed and left me wondering whether a simple proclamation is truly "simply" or more philosophical.
At time the book is rather long on actual philosophy, in addition to investment philosophy. I could have done without much of it. It would have been more helpful to include statistical evidence. Without it, this book is not as strong as it could have been.
Finally, low-volatility strategies have been very popular for the last 10 years. After the subprime crisis of 2008, the investment segment grew rapidly as investor shunned risk in favor of slow and steady. I’m always hesitant to chase the “popular” investment strategy over the last few years. Recent strong performance can really skew long-term results and turn strategies into self-fulfilling prophecies, to a point. And when the money rushes out, it’s a rough decline. History is littered with numerous examples of growth investing being the superior strategy in 2000, real-estate in 2005/6, commodities/energy, junk debt in the early 80’s, Japan, etc, etc. I feel the same way about dividend investing too. Its not that they are bad, but once their popularity is peaking, watch out. The growth in low-vol strategies and the numerous products launched confirm their retail popularity, and that scares me. So be careful, diversify, emphasis value, and know your risk tolerance.
While students are taught that expected returns are an increasing linear function of risk, within most asset classes, highly risky assets generate consistently lower returns than do those with average risk, and, after transactions costs are included, risky asset classes, such as options, are horrible investments for individual investors, the more so the riskier the option. Risky assets attract excessive interest from investors, and academics help them rationalize this adverse preference through their extensions of the Capital Asset Pricing Model (CAPM), all of which are very rigorous, but wrong. The “low vol” anomaly is not restricted to developed country equities. He has found it in emerging markets, and within equity industry sectors. He notes it has been found in corporate bonds, equity options, movies and private equities, but he could have added penny stocks, IPOs, real estate, currencies, futures, and sports books.
Pim recounts his discovery and implementation of the low volatility edge. In one anecdote, he credits his colleague David Blitz for noting that relative rather than absolute performance affects investment manager: underperforming is a greater threat to a long-only portfolio manager than is losing money. That is, if you lose 10% in a market that is down 10%, you did average, and your assets under management will probably not be decreasing. However, if you make only 5% in a market up 15%, assets will go down. Risk is symmetrical: it can be too great or too little, because if you take too little risk, you will underperform in bull markets, which is just as bad as those who take too much risk and underperform in bear markets.
This discovery implied it would not be an easy sell to tell investors that his low-vol tilt generates better returns merely because they have lower volatility, because they would have higher relative volatility. Yet this could be precisely why the strategy presents an opportunity, in that, for a portfolio manager, 'low risk' is actually 'average risk,' so risk averse professionals do not invest in low, but rather in average beta stocks (aka, closet indexing).
He presents a “law of three”—omne trium perfectum—all good things come in threes. In this context, the law of three is low vol, momentum, and value. His value metric is a form of price-to-income ratio, such as dividend yield or P/E. I am skeptical of a law stating 3 is the cardinality of attributes for Platonic forms, but agree that, in this case, it is a handful and not a factor zoo of dozens.
His portfolio formulation is refreshingly clear. First, normalize momentum and value using percentiles, sum them, apply to the “low vol” half of stocks, and viola, you have a darned good portfolio. Investors would be wise to follow simple rules for investing. Those with the humility that comes from wisdom will be relieved to know that they can optimize their investments by merely focusing on lower-than-average risk stocks that make money, generate dividends, and have performed well. Those who need the advice most—average equity investors—are least likely to take it.
Buy this book, read it and implement a low risk strategy for your portfolio.
Top reviews from other countries
1. Price volatility is not risk, in fact noted value investors has been voicing it for decades. The risk lies within business structure of company, well known tenet of value and growth investing.
2. Difficult to imagine how a stock remain high volatile in it's entire life cycle. Stock tends to high and low volatile depending market factors. To define a stock high volatile and another low volatile for a hundred years sounds to me weird.
3. Even low volatile stock produces higher return, what is the point author want to convey other than co-incidence? Volatility depends on float, money supply, promoter actions etc, which are all market forces. I can understand volatile stocks are favored by traders as swing can give them faster money. But long term investment....not able to grasp.
To me book doesn't make sense at all.
I couldn't laugh I finish the book, the last 60% page is gibberish. I guess author was trying to write an article, extend to a book by repetitive words and pictures to make some money.
Low volatility, high momentum and high income is secret formula. Lol
High income is defined as dividend+buy back, these are purely capital allocation decisions. A lot of high growth companies held back dividend due to expansion. Buy back these days happen when management runs out of organic ideas in most of cases.
Phew.....840 bucks down the drain!!