Video: High growth doesn’t mean higher stock returns

Posted by Robin Powell on September 1, 2015


You might expect a history graduate like me to say this, but people would make much better investors if they spent a little more time studying the past. Market history provides a wealth of insights that would save investors – including professional ones – a huge amount of stress (as well as money) if only they took the trouble to look for them. High growth.

Take the recent stock market crash in China, for example. For years we’ve been told that the best countries to invest in are those with the highest forecast rates of growth, principally emerging markets such as China and India. It’s become conventional wisdom that high growth invariably means higher returns and yet those who study the evidence know that isn’t true.

Yes, high-growth countries do provide considerable opportunities for investors who are willing to be very patient and tolerate periods of extreme volatility. Ideally all investors should have some exposure to them. But to put all your eggs in the high-growth basket and throw caution to the wind, as many inexperienced fund managers appear to have done in China, is to invite disaster.

I recently interviewed Professor Elroy Dimson from Cambridge Judge Business School, who probably knows more about market history than anyone else in the world, and asked him why high growth doesn’t necessarily translate into high returns. The problem is, as he explains in this video for ETFmatic, that although high growth undoubtedly brings benefits, investors are often the last people to enjoy them.

Click here to watch the video


Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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