The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period.
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A chief cause of crises, panics, runs on banks, etc., is that risks are not independently reckoned, but are a mere matter of imitation. A crisis is a time of general and forced
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There’s nothing you can do in the interest of being above average that does not expose you to the risk of being below average.
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Risk to us goes back to not paying attention to how one does in the short term.
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It is not the low multiple by itself that provides unusual opportunity nor the high evaluations that carry excessive risk. It is, rather, that the level of investment anticipations is low on one side and high on the other.
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The problem is that real risk and perceived risk are two different things. And that’s where people get into trouble, because they perceive risk to be high when prices are low, and they perceive risk to be low when prices are high.
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The concept that investment risk is less a function of the individual company than the price of its stock is not recognized by many investors.
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Risk is when there are multiple possible future states and the probabilities of those different future states occurring are known.
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Not even the “safest” investment is without some risk and some element of speculation.
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Volatility is often a symptom of risk but is not a risk in and of itself. Volatility obscures the future but does not necessarily determine the future.
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Risk means the chance of being wrong — not always in an adverse direction, but always in a direction different from what we expected.
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The goal is to make good returns with less risk. Risk is not the same as volatility. It’s very hard to measure risk.
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People, it turns out, are not that averse to risk. For many reasons, they are not opposed to risk, but they are opposed to losing and the possibility of loss plays a very significant part in their decision.
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Large losses are forever – in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.
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We use the term risk all too casually, and the term uncertainty all too rarely.
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I don’t think the objective of investment should ever be to take a risk in order to get a return. I think the objective of shrewd investment should be to find opportunities which offer a larger return than the average, combined with adequate safety.
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Please do not forget that as the common stock level advances, the advantages of common stocks appear to be more attractive and the basic need for owning them becomes more persuasive in everybody’s reasoning. Yet in fact, common stocks undoubtedly become riskier as the price advances, and thus the risk increases as the widespread acceptance of common stock develops.
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It may be a fair generalization to assert that the top levels of most “normal” bull markets are characterized by a tendency to equate stock risks with bond risks.
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Liquidity does not exist unless someone else is willing to give you cash in exchange for the piece of paper you want to sell.
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The more irreversible the decisions, the more expensive the consequences of being wrong.
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Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.
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Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.
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I am vitally interested in companies that are going to survive, but I don’t think a big cap company is necessarily one that will.
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The greater the potential reward in a value portfolio, the less risk there is.
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Many years ago, an older partner taught me to distinguish between outcomes that are unlikely and outcomes that are catastrophic. The latter are to be avoided even if the odds on them are tiny.
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We try to protect against tail risk: the risk of unlikely but possible events that could be catastrophic.
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People always want to believe that this time is different, that there’s something new under the sun, and that through their own ingenuity they can wish away risk.
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Volatility is not risk. And historic volatility does not necessarily project future volatility.
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Managers do not create large alphas by being conventional. They do so by taking the risk of being wrong and alone.
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Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred.
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The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.
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Risk is not inherent in an investment; it is always relative to the price paid.
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Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.
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The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk.
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It is only in a bear market that the value investing discipline becomes especially important because value investing, virtually alone among strategies, gives you exposure to the upside with limited downside risk.
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Value investors thrive not by incurring high risk (as financial theory would suggest), but by deliberately avoiding or hedging the risks they identify.
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Higher risk investments often erode one’s capital and produce lower returns — the worst of all investment worlds. Higher-returns-for-higher-risks only applies on average and over time.
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You have to say to yourself, “If I’m right, how much am I going to make? If I’m wrong, how much am I going to lose?” That’s the risk/reward ratio.
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Diversification of risk matters not just defensively, but because it maximizes returns as well, because we expose ourselves to all of the opportunities that there may be out there.
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Risk in our world is nothing more than uncertainty about the decisions that other human beings are going to make and how we can best respond to those decisions.
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At its root, risk is about mystery. It focuses on the unknown, for there would be no such thing as risk if everything were known.
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Risk is about how we make decisions, and only incidentally about the math that we employ to reach those decisions.
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Risk is about dealing with problems to which there is no certain solution.
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People worry about the riskiness of stocks, but bonds can be just as risky.
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Even in the highest grade securities, there is a certain inescapable speculative risk.
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After a stock market decline, people may perceive more risk than before when, in fact, the decline may have taken some of the risk out of the market.
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It’s important to recognize that the riskiness of investing comes only partly from the things you invest in. A lot of the risk comes from the behavior of the participants.
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There’s no asset so good that it can’t be overpriced and become a bad investment, and very few assets are so bad they can’t be underpriced and be a good investment.
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Almost any asset can be risky or safe, depending on how other investors treat it.
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If you think Treasuries have no risk and high yield bonds have risk, the yield spread is there to compensate for the bearing of that incremental risk. The question is whether it is adequate.
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I think that the business about volatility being risk is a con job which was perpetrated primarily because volatility is machinable.
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Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earning power through economic changes or deterioration in management.
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The idea of measuring investment risks by price fluctuations is repugnant to me, for the very reason that it confuses what the stock market says with what actually happens to the owners’ stake in the business.
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The greatest risks are the risks that we don’t see and the most difficult problem is in preparing in advance for that kind of thing.
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I don’t think volatility is an altogether irrelevant proxy for risk, even though, to a cool, dispassionate investor with a long-term time horizon, volatility is wonderful.
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