Is it possible to make low-risk investments in the stock market and still earn high returns?
The Modern Portfolio Theory says no.
The theory states that the lower the risk of an investment, the lower the expected return.
But that might not always be the case.
There is a class of investments that has generated greater returns with less risk than their industry counterparts.
Here’s why the risk is so low…
This class of investments is in the oil and gas industry. Worldwide demand for oil is projected to increase 25% over the next 20 years. Three-quarters of this increase is coming from Asia, with China playing a large part.
And worldwide natural-gas use is expected to increase 44% by 2035.
We are clearly in the midst of a long-term bull market in oil and gas.
That means investing in oil and gas (the commodity itself) is relatively low risk.
The oil and gas companies, though, take on quite a bit of risk. They spend a considerable amount of money to identify a deposit and explore it. They also pay for drilling the wells and transporting the oil or gas. And that’s not to mention financial and environmental risks, as evidenced by the BP disaster.
But because of this increased risk, they offer investors the potential for higher returns.
The S&P went nowhere over the last decade. Meanwhile, Chevron averaged 19.9% annually and Exxon averaged around 10%.
High risk, high reward. That’s right in line with the Modern Portfolio Theory.
Now here’s where the Modern Portfolio Theory gets thrown out the window.
There is an investment in the same field (oil and gas) that takes on less risk than the oil majors… but has the potential to produce far greater returns.
As you can see, the company represented by the yellow line has returned over 800% in the last decade. That’s 80% annually. Far greater than the 10% from Exxon and 19.9% from Chevron.
This company doesn’t do any exploring or drilling. They don’t build a single well head or hire any trucks to transport the oil.
They just sit back and get paid for every barrel of oil or gas sold.
Tomorrow, I will tell you what type of investment the company in yellow is… and how you can get full details about four of these companies that you should consider owning.