- The more risk we take because we believe the environment is low-risk in character, the less the environment continues to be low-risk in character.
- How can investors deal with the limitations on their ability to know the future? The answer lies in the fact that not being able to know the future doesn’t mean we can’t deal with it.
- The future should be viewed not as a fixed outcome that’s destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability distribution.
- Many possibilities exist today…this uncertainty as to which of the possibilities will occur is the source of risk in investing.
- It’s not reasonable to expect highly superior returns without bearing some incremental risk.
- While I don’t think volatility and risk are synonymous…in the short run, it can be very hard to differentiate between a downward fluctuation and permanent loss.
- Thinking risk control is easy is perhaps the greatest trap in investing, since excessive confidence that they have risk under control can make investors do very risky things.
- The key prerequisites for risk control also include humility, lack of hubris, and knowing what you don’t know.
- Risk avoidance isn’t an appropriate goal. The reason is simple: risk avoidance usually goes hand-in-hand with return avoidance. While you shouldn’t expect to make money just for bearing risk, you also shouldn’t expect to make money without bearing risk.
- It’s the job of investors to strike a proper balance between offense and defense, and between worrying about losing money and worrying about missing opportunity. Today I feel it’s important to pay more attention to loss prevention than to the pursuit of gain.