Be Wary of Minimum Volatility Funds

I think it is a very, very dangerous game to make a stock market investment with the intention that it will experience minimum volatility in price. This line of thinking suggests that people aren’t really treating a stock investment as a fractional ownership position in a business but instead treat it as a cash-like number on a household balance sheet that ought to rise and rise at every snapshot in time.

To protect myself from this delusion, I keep a log of the story behind Starbuck’s historically amazing performance and the terms of volatility that needed to be endured in order to achieve those performance results. Since its 1992 IPO, Starbucks has grown its earning by 28.8%. Over the past ten years, the earnings growth at Starbucks has been 19.5%. If it has been tucked somewhere in a diversified portfolio, you would be fortunate to own anything else that has grown earnings at a faster rate over that time.

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