Location : Wabbit Hole
Job/hobbies : Cayman Islands Actuary
|Subject: The most important question to ask when thinking about risk Sat Apr 01, 2017 9:51 pm|| |
|The most important question to ask when thinking about risk isnít how much volatility or upside youíre looking for, but how much time your emotions and goals need for that volatility to play out. |
One of the craziest things about investing is that you can be wrong half the time and still do well. Most of your investments can be disappointments as long as a few knock it out of the park.George Soros once said ďItís not whether youíre right or wrong thatís important, but how much money you make when youíre right and how much you lose when youíre wrong.Ē
This is intuitive for high-risk, high-reward investments like derivatives or venture capital.But the more I dig into it, the more I see it across all kinds of asset classes. The reason we donít think about it with ďsaferĒ asset classes is because it takes so long for it to play out.
Take venture capital and large-cap public stocks.
They have wildly different risk profiles. Venture is risky, suitable for high net worth and institutional investors. Large-cap stocks are safer, suitable for your grandmotherís retirement account.
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