Risk-Reward Concept

This is a general concept related to risk and reward. When you take risk, you expect reward. In theory, when the risk is higher, you will expect more reward in order to invest; but for lower risk, you can accept lower reward.

Most investors can easily understand and can accept that the concept of a low risk and high return does not exist in the real world of investing. If such rare opportunity does happen,  investors will quickly chase the investment and cause its yield to fall.

But when it comes to investing in the stock market, some investors may choose to ignore or  blind to the general acceptance of risk-reward concept. They can believe that high yield low risk does exist in the real world of open and easily accessible markets. They may not believe that high yield may be an indication of high risk and tend to believe that the open market is wrong. Yes, mispricing can happen in a panic market but when the calm is restored the market is seldom wrong for long.