Low risk high returns - is this ever possible?

I had dinner with Colin Gan (a PHD candidate in finance) a couple of weeks ago and he was telling me that he invests in low risk high returns businesses. For a moment I thought that my friend made one of the greatest discoveries for all mankind and if I could only implement his strategies I would be able to alleviate millions of people from poverty and make a whole lot of cash for myself - or maybe it was just wishful thinking. (It takes more than one person to carry out such a mammoth task)

But, lets look deeper into what Colin does and if there is any truth to his claims. It used to be, up until I met with Colin that "the higher the risks, the higher the returns." This maxim is still valid - I am not just hoping that it is and will be - it is the bedrock of all our investment policies and guidelines. So how is it possible for Colin to invest in low risk high returns investments?

Risk, as we know it in the investment circles, is the standard deviation over historical mean (or average price). There are many arguments as to what should be the optimal period that should be used for measuring average price. As a matter of practice, most of us use a three to seven years average.

Therefore, in order to measure risk you need to have some basis of comparison like the historical price of a stock and the stock market conveniently provides us with all the information for us to crunch and make sense of it all. But, there are those investments which do not have any historical data or price, like new startups or IPOs. So how does these investments become any riskier, or less risker for that matter? According to many, it is much risker. But, why doesn't Colin think so?

Colin even though he didn't put it in so many words, knows that the markets are inefficient. There are gems out there with little operating history or conversely with long operating histories and long on revenues and profits but are not quoted or listed in any exchanges. Some of these companies are really worth the investment. But what Colin does over and above what an average investor does, is to nurture these businesses and reaps the benefits at the end of it.

The most important take away is that the markets are inefficient and there exist investment opportunities for all of us to make a bountiful in our lifetimes and it knocks on our doors more than once. Open up your eyes to these opportunities.