Larry had always wanted to invest in stocks but had considered them too risky. Having thought long and hard about why stocks were risky, Larry concluded that the culprit was volatility in earnings. He was convinced that he could construct a portfolio of stocks with stable earnings that would deliver high returns without the risk. Without much effort, Larry was able to identify the companies that had reported the most stable earnings over the previous five years in each sector, and he put his money in the stocks.
Even as he bought the stocks, he found that many of them were pricey, trading at high multiples of earnings, suggesting that other investors had come to the same ...
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