Tham khảo tài liệu 'the four pillars of investing: lessons for building a winning portfolio_3', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | No Guts No Glory 35 is a bad value company without making too fine a point it is in fact a real dog. More importantly Wal-Mart aside from being the better company is also the safer company. Because of its steadily growing earnings and assets even the hardest of economic times would not put it out of business. On the other hand Kmart s finances are marginal even in the best of times and the recent recessionary economy very well could put it on the wrong side of the daisies with breathtaking speed. Now we arrive at one of the most counterintuitive points in all of finance. It is so counterintuitive in fact that even professional investors have trouble understanding it. To wit Since Kmart is a much riskier company than Wal-Mart investors expect a higher return from Kmart than they do from Wal-Mart. Think about it. If Kmart had the same expected return as Wal-Mart no one would buy it So its price must fall to the point where its expected return exceeds Wal-Mart s by a wide enough margin so that investors finally are induced to buy its shares. The key word here is expected as opposed to guaranteed. Kmart has a higher expected return than Wal-Mart but this is because there is great risk that this may not happen. Kmart s recent Chapter 11 filing has in fact turned it into a kind of lottery ticket. There may only be a small chance that it will survive but if it does its price will skyrocket. Let s assume that Kmart s chances of survival are 25 and that if it does make it its price will increase by a factor of eight. Thus its expected value is X 8 or twice its present value. The risk of owning stock in a single shaky company is very high. But in a portfolio of many such losers a few might reasonably be expected to pull through providing the investor with a reasonable return. Thus the logic of the market suggests that Good companies are generally bad stocks and bad companies are generally good stocks. Is this actually true Resoundingly yes. There have been a large .
