risk and return

Schwab has devloped a "risk gauge" that quantifies the overall risk of each of the approximately 3000 stocks they follow.

Surprisingly, historically less risk has been associated with more return! Indeed, the 30% of stocks ranked as most risky by the gauge not only have been more volatile than the market, they historically have underperformed the average stock over 60% of the time on an annual buy-and-hold basis from 1986-2005.

The lesson is that investors seeking higher returns should avoid stocks with high market sensitivity, small size and high EPS growth forecasts.

Ten stocks worthy of further research that are currently in the lowest 10% of the risk gauge rankings and also A-rated by Schwab Equity Ratings are ABC, ADM, BDX, XOM, LMT, MET, NWL, RTN, SLE, CTL [none of which I own].

-- Greg Forsythe, Charles Schwab OnInvesting Magazine, Summer 2006