By Jack Forehand (@practicalquant) — Investment professionals like to use a myriad of fancy terms to measure risk. The problem with almost all of them is that they are in no way understandable for the average investor. Words like standard deviation, max drawdown, tracking error and Sharpe ratio are often thrown around to judge how risky a portfolio is. Those concepts are not only very difficult for investors to understand, but they also aren’t all that… Read More
A key component of becoming a successful investor, writes Morgan Housel of the Collaborative Fund, is the “ability to be comfortable being uncomfortable.” Investors, he says, “have a fascination with no-brainers, obvious decisions, and easy money. The phrases should be chapter titles in a book on the ease of deluding yourself.” He argues that finding well-performing investments requires above-average intelligence but also the willingness to “endure more discomfort and uncertainty than others.” Housel cites a comment… Read More
When evaluating an equity fund’s volatility, more attention should be paid to “max drawdown”—the maximum decline a fund has experienced from peak to trough over a given period—than to standard deviation (how far returns move from the average). This according to a recent article in The Wall Street Journal. The article notes that a higher standard deviation generally indicates greater volatility. The stock market’s current standard deviation of 18%, it explains, indicates that “the majority—though… Read More
Last month, Bloomberg’s Erick Schatzker sat down with Howard Marks, co-chairman of Oaktree Capital, to discuss the fund manager’s investment approach. With respect to whether the now-stretched equity valuations make for what some are calling “treacherous” conditions, Marks comments, ” The riskiest thing in the world is to believe there’s no risk. When people talk about risk in the market, that’s a healthy thing.” According to Marks, however, there is an incongruity between words… Read More
Howard Marks, Oaktree’s CEO, recently wrote an article for Barron’s on investment risk, and how to quantify it. His answer: you simply can’t.
In the investing world, the standard thinking seems to be that the older you get, the less risk you should take on. But Charles Schwab’s Liz Ann Sonders says that’s not always the case.
How much risk can you handle in your investment portfolio? In a recent Wall Street Journal column, Jason Zweig looked at how to answer that question — and how brain science can offer some clues.
A periodic look through the archives of the greatest investor in history In Berkshire Hathaway’s 1993 Letter to Shareholders, Warren Buffett offered his thoughts on risk. Below is an excerpt from the letter.
While most strategists talk about risk as a static factor, emerging research indicates that people’s penchant for risk-taking is quite changeable from moment to moment — and that may have major implications for Federal Reserve policy.
For years, volatility and risk have been synonymous in stock market discussions. But in recent commentary, top performing fund manager Bill Nygren says otherwise. In a piece posted on Oakmark’s web site, Nygren notes that Oakmarks’ funds have been more volatile this year, and cites a couple reasons. One, he says, is that in a quest for yield in this low-yield bond climate, many investors “have begun to pay nearly unprecedented prices for stocks that… Read More