6. Risk Is What You Buy; Return Is What You Hope For
“If it weren’t for people who took risks, where would we be in this world?”
—From the sequel Wall Street: Money Never Sleeps (2010)
In this Immutable Law of Investing, risk is the input, and return is the output.
Why do capital markets exist? Think about this for a moment. The answer is quite simple. Capital markets exist so that companies can raise funds from new and existing investors. When companies raise funds directly from investors this is called the primary market.
What will these companies do with those funds? The use of funds raised in capital markets is endless! The funds are often used for expansion: new plants, new products, new geographic markets, or a new marketing campaign. Another ...