While security analysts attempt to determine with precision the risk and return of investments, events alone accomplish that.
For most investments the amount of profit earned can be known only after maturity or sale.
- Only for the safest of investments, is return knowable at the time of purchase: a one-year 6 percent T-bill returns 6 percent at the end of one year.
- For riskier investments the outcome must be known before the return can be calculated. If you buy one hundred shares of XYZ Corporation, for example, your return depends almost entirely on the price at which it is trading when you sell. Only then can the return be calculated.