LOW-RISK-INVESTING

Income Portfolio Design Tool      Monday, December 18, 2017
Low Risk. High Returns. The Holy Grail of Investing

About Low Risk Investing

I am not an investment professional. I am an engineer who caught the investing bug when I was in college 25+ years ago. Over time I have read countless investment books and learned my own lessons by investing in our capital markets. One of my all time favorite investment books is the very first one I read- Peter Lynch’s One Up On Wall Street. Lynch, who is considered one of the best mutual fund managers of all time, made a compelling case that the individual investor has numerous advantages over the professional investor. No one is going to fire you for having a bad quarter. You can buy any security without worrying about moving the market. While there are a few excellent money managers out there, the vast majority cannot beat a broadly diversified index fund.

Over the years I have made some great investments and I have had my share of failures. I believe the primary reason investing in the stock market is so darn hard is that our brains are not hard wired to make us good investors. You often need to do things that are so counter-intuitive. As Warren Buffett says, “you need to be greedy when others are fearful and fearful when others are greedy.” This is a lot easier said than done. On this website, I am hoping to bring you some of the tools and ideas that have helped me over the years.

The holy grail of investing is maximizing returns while minimizing risk. The primary risk is loss of investment capital. In the never ending quest to minimize this risk, investors use various metrics and techniques. Some of the characteristics of a balanced portfolio are a well diversified mix of holdings with minimal volatility and low correlation among the holdings. The intelligent investor needs to carefully assemble a portfolio with the goal of optimizing these attributes to meet her financial goals. While life offers you very few guarantees, lack of due diligence and planning pretty much guarantees mediocre investment returns, if not financial ruin.

Diversification gets a lot of press in the mainstream financial media. However, one must be careful not to use obsolete concepts of diversification because correlation among markets and asset classes can vary over time. For example, international stocks are far more correlated to US stocks than they used to be. So it is important to periodically study the correlation and volatility characteristics of various classes of securities.  Since there are very few easily accessible tools for calculating such attributes available to the individual investor, especially for arbitrary periods, I attempt to solve that problem with a free portfolio analysis tool I offer on this site. It calculates the total return, volatility and correlation values for a basket of securities for any period of your choice. They can be stocks, mutual funds or ETFs (exchange traded funds). This is a tool I created for my own use after I got tired of spending hours downloading and crunching numbers using Excel spreadsheets. I hope you find it as useful as I have.

Please provide feedback if you have comments or suggestions.

Happy investing!

B. Jacob