What is a no-brainer investment?

“It was a no-brainer: higher risk equals higher return. What junk bond investors had forgotten is that higher risk does not guarantee higher returns; it merely offers the chance of higher returns. When they closed their books on the eighties, they discovered that they had lost the gamble. Ovewr the course of the decade, money invested in the average junk bond grew just 145 percent – substantially less than the 177 percent investors would have earned in US Treasuries, without taking any credit risk whatsoever.”

Whenever someone says an investment is a “no-brainer”, one is indicating that you don’t need any brains to figure out that there is money to be made.

However, in real life, majority of such no-brainer investments turn out to be no-brainers in another way: You do not need any brains to understand the high risk involved.

Be careful. Losing an opportunity is far better than losing your capital.



What is a “no-brainer” investment?

A “no-brainer” investment is one where one does not need superior intelligence to understand that one would definitely make money investing in this option.

However, when the investment looks like a “no-brainer” to many, it ceases to be a “no-brainer”.

During the Tech-bubble of 1999-2000, investors in India thought it was a no-brainer to invest in tech stocks. Ditto for DotCom companies in the US during the same period. Buying Japanese stocks and real estate in the 1980s was a “no-brainer”. Harshad Mehta’s midas touch in 1991-92 appeared a “no-brainer”.

Be careful when everyone thinks of something as a “no-brainer”. Use your own brain when everyone¬†thinks that “this is a no-brainer”.

#RidingTheRollerCoaster – 116