If Risk Is Not Share Price Volatility... Then What Is It?
If Risk Is Not Share Price Volatility... Then What Is It?
Risk = How Can The Fundamentals Change For The Worse, and How Much You Can Lose If You're Wrong
Much ado has been made about the academic definition of investment risk (i.e. price volatility) by the value investing community. I have explored the mainstream view concerning risk management at length in my previous articles before (also linked below), and in this article I will not be regurgitating what most of you already know by now — i.e. VOLATILITY IS NOT RISK.
However, the value investing community doesn’t do much to further the discussion beyond that. Everyone knows that risk doesn’t mean volatility by now — simply describing it as the permanent loss of capital without any further explanation on how to implement it as such isn’t very helpful to newcomers.
More significantly, this mere understanding of the definition of investment risk doesn’t usually translate into a true appreciation of risk. What does risk look like? Why is it so dangerous? How should one respect risk, or determine whether it is worth managing? The only thing achieved by knowing what risk is is helping investors avoid doing the wrong thing (i.e. risk = volatility) — but leaves them hanging regarding actually doing the right thing.
Furthermore, a quick Google search will reveal that even veterans of value investing don’t really articulate what investment risk means in a manner that is intuitive and approachable to the layman. It surprised me to discover that even household names like Howard Marks or Seth Klarman only stop at describing risk as the permanent loss of capital — which most beginner value investors will struggle to comprehend (including my younger self). To be sure, these heavyweights definitely understand what good risk management means — but why none of them have broken down the concept of risk into an ELI5 manner for beginners after all these decades is beyond me. In contrast to say, the abundance of investment commentary by them on macroeconomics, business analysis or portfolio strategy.
My intention in writing this article is to fill that gap — to break down the concept of investment risk management for the beginner value investor into an intuitive an actionable format, such that they can immediately start putting the preservation of their capital into practice. None of these are original thoughts — they are simply the ELI5 version of risk management practices that value investors have been spouting for decades, but rephrased in a more approachable manner in my own words such that even a beginner can understand. It took me a long time to gain a true appreciation of some of these investment wisdoms — and I hope that by simply rephrasing them using more everyday language, more value investors can come to appreciate the importance of risk management and its indispensable contribution to generating excess returns (i.e. alpha).
Chapters:
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Definition of RISK = Chance x Exposure
When asked for the definition of Reward or Return in an investment context, most investors can usually provide a decent answer without skipping a beat. This is because the entire point of investing in stock markets is to make money — and thereby coming up with a definition of Profit is effortless. However, ask many for the definition of investment Risk and watch them go into a tailspin — for the simple reason that they have barely given a second thought to it.
This is a problem from a societal standpoint because any experienced investor will tell you that good risk management is a huge contributor to long-term returns in the stock market. Even a layman will intuitively understand that there is no point in making one dollar of gain — if you’re just going to give it back as one dollar of loss later. Yet, the mere mention of risk management in many stock market settings often conjures looks of intrigue (and sometimes even disdain), as if the speaker had suddenly sprouted three separate necks on the spot. It probably doesn’t help that financial academia promotes the wrong definition of investment risk (i.e. volatility) — making it insufferably hard to reconcile it with the English definition of risk (i.e. a threat) using ‘volatility’ as a starting point. Despite that, my intention with this article is to do exactly that.
Most finance graduates will have learned in college that the definition of Risk = Chance x Exposure. However, this phrase has become so common in everyday use that it has turned into a cliché — with the actual meanings of the words skating past most people’s heads. As such, I have opted to augment the words to Risk = Chance x Exposure — which provides slightly better interpretation in a stock market context, but essentially mean the same thing:
DEFINITION OF RISK = CHANCE x EXPOSURE
Why is this definition so insightful? Importantly it separates the singular concept of Risk into two distinct components: Chance and Exposure. ‘Chance’ in this context simply means the ‘Probability’ of a loss event materializing — but better conveys the ‘maybe’ nature of the potential risk event, as it may simply never occur. ‘Probability’ on the other hand conveys a numerical context, which might mistakenly imply degrees of certainty.
‘Exposure’, on the other hand, refers to the magnitude of the loss should the risk event materialize. I prefer using ‘Exposure’ over ‘Impact’ in the current context, as it better conveys the risk nature of the potential loss event. In this way, the Expected Value method of valuation assigns a probabilistic value to uncertain events.
When most people talk about risk management, they tend to refer to the ‘Chance’ part of Risk. That is, how do we avoid the loss associated with this risk? The underlying assumption tends to be that any loss is unacceptable, and therefore risk needs to be avoided. Hence, most risk management discussions tend to focus predominantly on how to minimize the ‘Chance’ of risk materializing — e.g. estimating the statistical probabilities of risk occurrence, in order to mitigate the occurrence of such risk by reducing the frequency of undesirable probabilities in favour of desirable probabilities.
However, comparatively little focus is given to mitigating the other part of Risk (i.e. ‘Chance’) — such as by allocating capital to safer investments. This may be because mitigating risk exposure also tends to involve reducing reward exposure — which some may consider unacceptable in our profit-starved world. However, if we allow ourselves to entertain the notion, then we may intuitively recognize that it is possible to find risk:reward asymmetry in Mispricings — a concept which we will explore in greater detail below. Regardless, the point I’m trying to make here is that good risk management involves not only mitigating risk ‘Chance’, but also risk ‘Exposure’.
The recognition that good risk management involves mitigating risk ‘Exposure’ is significant — as it gives us a lot more control over potential loss outcomes. For instance, ask an investor to try and optimize the distribution of risk probabilities (i.e. ‘Chance’) in his portfolio, and you’ll likely get a ‘deer in headlights’ look in response. This is because of two reasons — firstly, most market participants tend to think in terms of nailing down investment outcomes with 100% certainty through superior analysis (i.e. forecasting), hence thinking in terms of probabilities isn’t an intuitive course of action. Secondly, attempting to optimize risk probabilities in a large portfolio tends be an insurmountable task — as any fund manager who has ever tried to estimate portfolio correlations between 20 different individual positions can tell you. Just think about how many factors are involved in future oil prices alone — now think about how many other macro risks there are, and how they all affect each other.
Hence, the secret to investment risk management is that you don’t actually need to estimate risk probabilities with accuracy if you can manage your risk ‘Exposure’. As Quadriga fund manager Diego Parrilla mentions at the linked timestamp in the above Real Vision interview, you don’t really need to manage the correlations between the individual positions of your portfolio — if you know in advance that the most you can potentially lose is the amount you have invested. The implication here is that if you can accurately estimate what your maximum loss could potentially be, you don’t actually need to estimate precisely the ‘Chance’ of loss associated with that position. Subsequently, it stands to reason that estimating the maximum potential loss magnitude of each stock position is a far more reasonable prospect than estimating the distribution of risk probabilities in a 20-stock portfolio.
If so, then the paramount objective of stock market investing is not to seek profit — but to seek risk:reward asymmetry. In contrast to the impossibly challenging nature associated with trying to forecast future share price outcomes with 100% certainty, even a layman can intuitively recognize that if there is favorable risk:reward asymmetry in every single one of your stock positions, you are almost guaranteed to get your desired 15% CAGR at the aggregate portfolio level over a reasonably long investment horizon.
This is how a risk-focused approach can lead to superior returns over a return-focused approach — since you’re not even playing the same game as everyone else of finding outcomes with the most upside. Rather, you are playing a different game altogether with an completely different objective — i.e. optimizing the statistical distribution of all probable outcomes via looking for risk:reward asymmetry; and then trusting in the process leading to favorable outcomes. Since you are playing a completely different game, you are no longer competing with everyone else over the same share prices on the same playing field — but rather competing on an entirely different platform with perhaps only <1% of all stock market participants who share the same objective of looking for risk:reward asymmetry. Remember, we are not looking for maximum upside — we are investing in an average of all probable outcomes but with upside asymmetry.
We’ll dive into the application of risk:reward asymmetry in greater detail later — but the point to take home here is that the secret to good risk management lies behind managing risk ‘Exposure’, rather than the common association of risk management with mitigating risk ‘Chance’. Now, when someone asks you how to minimize the permanent loss of capital, you can give them an approachable answer: figure out the maximum potential loss of each of your stock positions. Even a 5-year old who knows what the stock market is can understand that.
In fact, this approach to risk management isn’t something which I came up with — I actually learned it from the legendary George Soros himself. Managing your risk ‘Exposure’ instead of your risk ‘Chance’ is the essence of his famous quote below:
By claiming in his quote above that your stock prediction doesn’t even need to be correct, Soros is saying that it is basically unimportant to estimate the risk ‘Chance’ (i.e. probability) of any particular stock position. Instead, one should focus on estimating the risk ‘Exposure’ (i.e. magnitude) of your stock positions — and seek to put a floor beneath them (i.e. capping your maximum potential loss).
Understanding this concept of capping risk ‘Exposure’ also provides important context to Trump’s following quote: “Protect the Downside and the Upside will Take Care of Itself” (I know that Trump gets a bad rap, so here’s famed value investor Mark Sellers saying the same thing). The principle of focusing on your downside even at the expense of eschewing the upside is extremely prescient — but may not be the most intuitive advice in our profit-obsessed world. The first question I usually get in response to this is, “Isn’t the entire point of investing to turn a profit? Why would anybody only focus on the downside, without focusing on the upside?”
However, once we associate the aforementioned principle of mitigating risk ‘Chance’, it becomes immediately obvious how this principle works in practice. If the investing objective is risk:reward asymmetry rather than profit, then the underlying assumption is that for a given amount of risk, one is only able to entertain a limited amount of reward. Hence, simply focusing on risk alone will organically lead one to consider whether there is commensurate reward in the trade — while also providing the added advantage of prioritizing risk over reward, such that only trades with sufficient risk:reward asymmetry are allowed into the portfolio. Naturally, if there isn’t sufficient risk:reward asymmetry, then the Intelligent Investor should be willing to forego that profit opportunity — no matter how attractive the upside might be, since his goal is to seek risk:reward asymmetry rather than profit. Notice the parallels to Buffett’s advice on patience in investing here?
To summarize, Risk = Chance x Exposure — and the secret to effective risk management is to limit your risk Exposure, not your risk Chance. While a good faith attempt should always be made to estimate the distribution of risk probabilities (i.e. Chance) of your portfolio positions, the Intelligent Investor’s risk management focus should lie predominantly in estimating his portfolio’s maximum risk Exposure. Through managing the maximum loss consequences of his positions, he can be religious about maintaining a healthy relationship between risk and reward in his portfolio — and be willing to forego profit opportunities where the risk:reward relationship cannot be justified.
This is What Risk Management Means To Value Investors.
Risk Management = Risk Reduction
One way that I’ve been able to intuitively communicate the goal of Risk Management to laymen in an approachable manner is by changing the framing — by describing it as Risk Reduction instead. By doing so, we are able to draw a direct contrast to Increasing Returns — which needs no further explanation, as it is human nature to seek profit. In contrast to the arcane description of Risk Management, Risk Reduction is easily understood as simply reducing your chances of losing money.
How do we put this theory into practice? Well, let’s say you want to invest in Bitcoin. When asked to consider risk management, few investors in Bitcoin will even begin to understand what that means — beyond storing it in a cold wallet for security reasons. However, change the framing to risk reduction, and it suddenly becomes painfully obvious how much chance of permanent loss of capital you are taking. The implication here is that a Bitcoin investor who tries to reduce such risk of capital loss will find that there are few options available to do so — since Bitcoin is either worth the entire global market cap of gold of $12T, or nothing at all. There is no risk reduction strategy because there is no risk gradient to slide down.
However, let’s say someone who has only invested in Tech stocks wants to adopt the practice of risk reduction. How can he approach the reduction of the chance of permanent loss of capital? If he cycles out of Tech stocks into Utility stocks with more certain FCF, he reduces the aggregate cash flow risk of his portfolio companies. If he rebalances away from loss-making Tech stocks exclusively into profitable Tech stocks, he reduces the risk of his portfolio to interest rate sensitivity. If he buys a put option on his Tech holdings, he reduces the risk of downside macro risk. In this way, it becomes simple to observe how risk management = risk reduction.
Importantly, risk reduction draws a distinction away from “risk abstinence”. The way many investors tend to think about risk management is to avoid all risk as much as possible — which is why alluding to risk management tends to draw suggestions of holding 100% cash. Risk reduction is not about avoiding risk completely — it is about reducing risk to an acceptable level commensurate to the potential return, with the objective of seeking risk:reward asymmetry. By describing risk as something to be reduced, we are implying that risk reduction isn’t just some discretionary duty to be observed as a responsible investor — it is something that informs every investment action, and should be done all the time as naturally as breathing is done all the time. In other words, it is an investment mindset.
To illustrate, let’s say that an investor is considering buying a stock. Adopting a risk reduction mindset to investments will naturally lead him to ask — how does this increase the chance of loss in my portfolio? Is the FCF yield of the new stock better than the portfolio average? Does adding the new position increase the aggregate portfolio’s correlation to inflation risk? Can I reduce this risk further? If a global recession happens, how does it increase the delta of each stock position to going concern risk? Can I reduce this risk further? What if the global economy recovers unexpectedly? Can I reduce the upside risk further?
Notice how risk reduction as described above is an activity that is constantly practiced — just as most investors treat profit-seeking as an activity that is constantly practiced. At every nook and cranny of the investment process, the Intelligent Investor is constantly on the lookout for opportunities to reduce risk — just as humans are naturally constantly on the lookout for opportunities to further profit.
And rather than describing risk management as an absolute risk target to be achieved, risk reduction describes reducing risk from an existing baseline in relative terms — which is a constantly moving target, as risk can always be further reduced (or rebalanced against potential reward). Furthermore, the level of risk does not remain constant — it fluctuates with capricious developments in an ever-changing investment environment, and therefore needs to be constantly relooked at again. In other words, simply reducing portfolio risk alone can take up all of your time — which is where the spirit of “Protect the Downside and the Upside will Take Care of Itself” comes from.
Of course, the organic inference here is that the Intelligent Investor will also be seeking to increase returns at the same time — and therefore automatically seek to balance minimizing risk with achieving adequate returns; rather than minimizing risk as an isolated objective. However, since the portfolio objective is to optimize risk:reward asymmetry, attaining an optimal balance between risk vs. reward is an organic process. Hence, when I refer to risk reduction as an investment process, I am also referring to managing for adequate returns at the same time — where I differ from the status quo is that I am actually bothering to account for risk reduction at all.
The above explanation seeks to demonstrate how thinking about risk management as risk reduction helps investors see risk management from a different perspective. In contrast to the possible interpretation of risk management as some kind of passive background activity which plays a secondary role to alpha generation (i.e. returns), risk reduction is the process equivalent to increasing returns and contributes equally to the profit objective. Risk Reduction is just as relevant to long-term stock market outperformance as increasing alpha (i.e. returns) — since every dollar of loss offsets every dollar of profit generated.
Furthermore, risk reduction can also open more doors in terms of creating new profit opportunities. This is because investment positions which previously may not have been possible under a risk abstinence strategy now becomes a game of “is it possible make this attractive but unacceptably risky position more tenable” — where the option now exists to reduce the baseline risk of the previously too-risky idea down to a more acceptable level.
For instance, let’s say you are feeling super bullish about the valuations of O&G stocks today — but are worried about the potential maximum drawdown of future oil prices. Whereas an investor who practices risk abstinence might balk at the outsized uncertainty inherent in oil prices (and therefore forego investing in undervalued O&G stocks altogether), the Intelligent Investor who practices risk reduction will organically ask how he can potentially offset the drawdown risk of spot oil prices. This may lead him to stumble upon the existence of super-cheap oil price options which can be used to hedge against drawdown risk — whose premium costs can be more than justified by the >50% margin of safety inherent in O&G stock valuations today. In this way, adopting a risk reduction mindset can lead the Intelligent Investor to approach things from a different point of view — thus empowering him to discover new rabbit holes of opportunities which may have been hidden in his blind spots previously.
I could go on and on for days with different examples of how this risk reduction approach can be applied to different kinds of risk — e.g. macro risk, correlation risk, credit risk, contagion risk, competitive risk, etc. The point is to demonstrate how risk reduction is a comprehensive way of describing risk management in the context of stock market investments — and should form a persistent component of the risk management toolkit, where the investor is constantly and unforgivingly asking himself everyday how he can further reduce portfolio risk until the end of time. Adopting such an active and persistent attitude towards risk management will organically save the investor from making brutal and painful investment mistakes — and leads us to our next chapter in this series of investment risk management.
The Risk Management Objective — Enabling The Compound Interest Phenomenon
In our profit-obsessed world, it has unfortunately become quite natural to think of risk management as detracting from the investment objective of profit maximization. This is because the very concept of risk management invites connotations of conservatism — which due to the inverse relationship between risk and reward, would naturally imply accepting lower returns for lower risk.
This is ultimately untrue — because as we’ve explored above, the investment objective of the Intelligent Investor is to generate alpha via discovering risk:reward asymmetry in the form of mispricings. By definition, a mispriced stock does not have to observe the natural relationship between risk and reward — since it implies that the share price is wrong. When Buffett says to look for stocks with at least >50% margin of safety, he is asking us to look for excess return over risk residing within criminally inefficient share prices which exists with certainty today; not business fundamentals which may or may not grow into their present-day valuation sometime in the uncertain future. In other words, he is asking us to look for risk-free return — i.e. the closest thing to arbitrage that exists in the modern day.
However, even if we were to utterly ignore the contribution of mispricings to excess returns and observe the inverse relationship between risk and reward, this does not mean that good risk management does not contribute to the profit maximization objective. It does that very well by enabling the compounding process, so as to allow it to effect what Albert Einstein refers to as the 8th wonder of the world — i.e. compound interest.
When the investment industry attempts to benchmark a particular investor’s long-term performance, it tends to reference the standard performance metric of Compounded Annual Growth Rate (CAGR). For instance, a value investor might target an absolute long-term return of 15% CAGR — or marvel at Berkshire Hathaway’s outstanding outperformance of 20% CAGR since the inception of its stock portfolio in 1965.
Notably, the concept of CAGR refers to an average number. While it does not strictly refer to a mean average performance, it still represents a compounded average performance figure averaged over time — to smoothen out the performance attribution of lumpy year-on-year returns. Hence, the CAGR descriptor itself inherently contains the meaning of compound interest — and implies that the investment objective is to secure the target investment yield in order to generate profit; rather than how most investors approach it, which is to do it in reverse order. (i.e. generate profit in order to secure the target investment yield)
Here’s what I mean. Think about how most investors calculate their CAGR performance — they will tally up their investment profits over time, and then work backwards to calculate the equivalent CAGR yield, right? In contrast, the Intelligent Investor looks to secure an investment yield (i.e. CAGR) — and simply intends to earn a profit equivalent to the Return on Invested Capital. This makes the investment objective a yield consideration, rather than a profit consideration — the Intelligent Investor is looking to earn an adequate ROI relative to his capital base, not target a particular profit goal.
The difference between the two may be subtle — but have incredibly stark differences in practice. Setting an investment objective of achieving a target profit (like how most investors do) implies that the goal is to achieve maximum profit; whereas setting an investment objective of earning a Return on Capital implies that the goal is to enable the compounding process to do its job. Whereas the former intends to “manually” mine every unit of investment profit by the sweat of his brow, the latter is simply observing the sanctity of the compounding process — with his own profit merely an afterthought. The former takes the initiative to ensure his wealth; whereas the latter is simply following a process to nurture the compound interest phenomenon — because he believes that as long as he does, his wealth is “automatically” guaranteed by extension without requiring any further personal effort on his part.
Notice how different the priority of the latter investor will be as compared to the former. Since he is completely hostage to the compounding process for his end-results, he is naturally extremely fearful of doing anything which could potentially trip it up. Subsequently, he would be extremely cognizant of taking incremental risks — since it could potentially lead to his ruin.
In contrast, the former type of investor would likely attribute his investment outcomes to be a function of his own effort and willpower — likely believing that he can overcome anything as long as he sets his mind to it. Given the inverse relationship between risk and reward, he would naturally seek to take more risks than others in an effort to expand his potential exposure to greater rewards — under the assumption that he can push his way past any risks that might materialize by overpowering them through sheer willpower.
Unfortunately this is a faulty assumption, since an investor really only has two levers of control in the stock market — buying or selling a stock. You can’t will a share price to go up no matter how hard you try the way you might impose your will on a business environment — and ironically enough, imposing discipline on your worst impulses can actually lead to more detrimental outcomes in stock markets than simply following the path of least resistance. Successful investing in stock markets is all about successful upfront positioning — by the time risk materializes, it’s usually already too late to apply remedial solutions.
As such, if we can have full faith in the compounding process to help us achieve our ancillary financial goals, then quite clearly our investment objective should be entirely focused on guaranteeing that 15% CAGR target yield with as high a certainty as realistically possible. Naturally, this would mean that we need to have a healthy dose of respect and fear for risk — and actively seek to manage portfolio risk via adopting a persistent investment mindset of risk reduction. If an inverse relationship between risk and reward exists, then it becomes mandatory to learn how to be okay with accepting some tradeoffs with regards to eschewing maximum profits (e.g. foregoing 100% CAGR opportunities like Bitcoin) — in favor of striking a realistic balance between risk vs. reward.
Consequently, there is also a significant difference between how an investor will approach the art of stock picking when he is focused on achieving maximum profit — as compared to if he is trying to enable the compound interest phenomenon. The former type of investment objective will lead the investor to prioritize stocks with infinite potential upside — in the hopes that his winners will outpace his potential losers, resulting in a net profit. In contrast, the latter type of investment objective will anchor his return expectations around the 15% benchmark yield — and will incentivize him to be very careful about adding positions, only justifying taking action if there is mathematical certainty that it improves his existing portfolio risk:reward.
This incentivizes the former to throw caution to the wind, and fidget in response to every potentially lost opportunity; whereas the latter would be incentivized to sit patiently without doing anything in what Buffett refers to as a “no-strike game” — until a “fat pitch” comes along that he can “bat a .400 on”.
Also notice how embracing an investment objective of ‘securing the compound interest phenomenon’ brings clarity to many of Buffett’s seemingly arcane quotes — such as “Rule No. 1, Never Lose Money” or “Our Favorite Holding Period Is Forever”. Rather than being good habits to be willed into practice as a matter of discipline in an “eat your vegetables” style, such “Buffetisms” are simply the natural extension of pursuing an entirely different investment objective from the status quo. They should be completely effortless to put into practice if observing adequate risk management is the paramount objective — since if your aim is to enable the compound interest phenomenon and thus allow it to do its job, you will organically pay extreme heed to any amount of incremental risk you might take that could interrupt the compounding process; or even worse, work against you in the reverse direction.
And if no idea comes along that satisfies your stringent risk criteria, then you will simply be very comfortable not doing anything. Likewise, if your goal is to achieve a target yield of 15% CAGR rather than maximum profit, you will be preoccupied with holding undervalued stocks for any length of time without a predetermined time horizon until they revert to fair value.
What It Means To Be An (Risk) Intelligent Investor
Many of the aforementioned value investing principles which we have heard “so many times by now” are actually extremely profound, as they crystallize a lot of the investing wisdom which took the likes of Buffett decades to learn. They only sound cliché because we may not yet have the context to fully comprehend them — which only comes with sufficient maturity and experience in markets. Just as a child who is told not to play with fire can avoid getting burnt simply by trusting their parent’s advice, so to can we stand on the shoulders of giants and benefit from their wisdom by simply following in their footsteps. Eventually, I came to realize that the advice given by them was never meant as admonishment — it was to save the recipients from getting burned by the elements, at least until we had developed enough experience to truly appreciate how hot the fire really was.
Ultimately, this is what Intelligent Investing boils down to — a set of investment principles which advocate prioritizing risk over reward by observing risk:reward asymmetry in our investment process. In recognizing that risk can be broken down into two components — Chance and Exposure — we can address the insurmountable task of optimizing Chances of portfolio risk by actively mitigating potential portfolio risk Exposure in the selection of our investment positions. Subsequently, we should adopt an investment mindset of risk reduction at all times — where we are constantly seeking for opportunities to reduce risk, in equal intensity to how we constantly seek for opportunities to increase reward. This is because we recognize that each dollar of loss equally offsets each dollar of gain, and that there is no sense in seeking profit at the expense of prudence. Conversely, constantly seeking to reduce risk at every opportunity actually opens new doors to previously unavailable profit opportunities.
Ironically, such a risk-focused approach can eventually yield greater returns than a profit-focused approach — since the investment objective isn’t to claw your way to profit, but to enable the compound interest phenomenon. As the investment objective is to avoid interrupting the compounding process rather than profit-seeking per se, the Intelligent Investor will naturally be very cognizant about portfolio risk — since any incremental risks has to be justified by a commensurate incremental return, preferably one with ludicrously asymmetric upside. And the best way to find such lopsided risk:reward asymmetry is by looking for mispricings — where the market has priced the stock wrongly today, and therefore the natural inverse relationship between risk and reward no longer acts as a constraint on the potential magnitude of reward that can exist alongside risk. In this way, the investor shifts his investment objective from profit maximization to optimal risk:reward asymmetry — and graduates into a true value investor.
This is the true meaning of investment Risk, and what it really means to be an Intelligent Investor.
Check out my previous articles about Risk in the context of Investments!
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I liked that.
You should post that on Jika.io