Exploring the relationship between people and their money.
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Rule No. 1: Never Lose Money
Rule No. 2: Never Forget Rule #1
—Warren Buffet
If you have been around the investment industry much, you’ve probably heard that if you miss just a few of the best days it has a massive impact on your investment return. Back in January, Jason Zweig mentioned some updated research on this concept. [...]
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There are at least two perspectives for viewing risk:
[1] The Investment
[2] The Investor
If you are looking from the perspective of the investment, then maybe (just maybe) you can measure risk in terms of how much the investment moves up and down.
This is called standard deviation.
[You can read my essay in the current issue of Financial [...]
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[This is #3 in a series of Meditations on Risk.]
In the investment world standard deviation = risk.
This idea that how much something wiggles up and down equals risk is troubling me.
I am not sure why, but it might have to do with the fact that the word “risk” implies the unexpected. A surprise. Something that [...]
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[This is #2 of a series of Meditations on Risk.]
As a follow up to the last post about basing our decisions on the recent past, here is the bad news:
Long-term investing is not long enough
We only have 82 years of data. As funny at this sound, 82 years is not a lot. They are still [...]
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[This is #1 in a series of Meditations on Risk]
So often we base our sense of risk on our limited experience. But often this experience is so limited that is of almost no value.
The mind plays tricks based on the recent past. If you visit Seattle 2 summers in a row and it’s sunny during [...]
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