The Economist magazine for 7 – 13 December lead with an awesome article on risk management entitled ‘The Rise of Blackrock’ about the US based multinational investment management corporation’s growth since it’s inception in 1998 stating:
It (Blackrock) is easily the biggest investor in the world, with $4.1 trillion of directly controlled assets and another $11 trillion it oversees through it’s trading platform, Aladdin – Page 3, The Economist
Well that’s a lot of dough, especially for one entity.
The Economist went on to warn that regulators who are worried about it’s size and the impact this has on the financial markets to not be too heavy handed with Blackrock since it was the one who managed to navigate the financial chaos and come through not only unscathed but much stronger.
According to The Economist, Blackrock controls approximately 7% of the world’s stocks and bonds so the regulator’s worries are well justified.
The Economist cite two reasons for Blackrock’s success:
- Offering cheap alternatives to mutual funds: by offering products such as Exchange Traded Funds that track indices like the S&P500, Blackrock were able to offer an almost identical product without the associated mutual fund fees the savings from which were passed to consumers.
- Risk management in it’s actively managed portfolio: The Economist describe Blackrock’s ‘leadership in mortgage-backed securities’:
because it (Blackrock) analysed their riskiness zipcode by zipcode, it not only avoided a bailout in the chaos that followed the collapse of Lehman, but also advised the American government and others on how to keep the financial system ticking in the darkest days of 2008, and picked up profitable money-management units from struggling financial institutions in the aftermath of the crisis.
It’s no wonder that when Blackrock makes statements like the US stock market is nearing exhaustion, people tend to listen.
Why It’s Smart To Ask Where’s The Risk? And Not How Much Can I Make?
Blackrock were smart to focus on risk management and cost reduction otherwise they would have ended up like just another plain vanilla mutual fund.
When I wrote How To Start Value Investing In 30 Days I did not make promises of making $500 a day for 30 minutes work a day as I’ve seen some advertise online. Instead the focus is on being able to take a simple value investing strategy that has been proven to work over the long term and build a bespoke screener using free online tools in order for busy people to be able to start value investing in the most lowest risk way possible.
If you start from the premise that all investments are to be low risk and you are able to define what those risks are in order to seek to avoid them, then this is the very essence of successful stock market participation from a value orientated perspective, unless you like gambling.
One way out of several in which the investment strategy in How To Start Value Investing In 30 Days reduces risk is by adopting low portfolio turnover as one of it’s guiding principles.
A high portfolio turnover is a risk to returns since it increases costs, the complete opposite of the Blackrock approach to business when applied to value investing.
If you pull all of the low cost/risk management pieces of the jigsaw together from the ebook and implement them, then results will be higher returns, lowers costs and a better outlook for your financial well-being in the future.
It took me years of testing and losing real money on the stock market to figure these things out for myself so now you’ve no excuse to let the market take you for a ride. Just send me 20% of the cost savings you’ll make on a yearly basis and I’ll call it evens 🙂
- The Shares And Stock Markets Value Investing Manifesto
- How To Give Your Portfolio A Margin Of Safety – These 3 Easy Steps
- 4 Giant Tech Stocks Get The Ben Graham Treatment
Image: Giant’s Causeway