Article by Investment Master Class

“The best way to minimize risk is to think” Warren Buffett

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"The linchpin of our philosophy is to think critically about risk, especially low-probability risks. Our old fashioned style embraces humble skepticism and is wary of most modern risk management tools and ideas (i.e. broad diversification, financial models, derivatives, etc). Our concern is such tools and ideas can act like mental shortcuts and subtly diminish one’s appetite for critical thinking." Allan Mecham

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“If we put our head in the lion’s mouth, we shouldn’t be surprised if it’s bitten off” Peter Bevelin

"Risk never looks like risk when it’s generating a high return" Howard Marks

“Makes sure that the probability of the unacceptable (ie the risk of ruin) is nil” Ray Dalio

“Never set yourself up for the knockout punch” Kyle Bass

“Whatever you do, make sure you're around tomorrow"  James Dinan

“If a gambler has a risk of terminal blow-up (losing back everything), the “potential returns” of his strategy are totally inconsequential” Nicholas Nassim Taleb

“If we can’t tolerate a possible consequence, remote though it may be, we steer clear of plantings its seeds” Warren Buffett

"I’m firmly convinced that investment risk resides most where it is least perceived, and vice versa" Howard Marks

"Paradoxically, it is exactly then, when investors don’t see any risk in a market that it becomes the riskiest. But this is usually realized later" Francois Rochon

“Our style is to try to minimize risk in every way we can, and be glad by what is left by way of return. We don’t love risk for the sake of excitement (Some people do). We think of risk as a phenomenon to be watched from afar, like some wonderfully picturesque flaming lava flow from a volcano. It looks inviting and beautiful, but it scorches, if not destroys, those who venture to close.” Paul Singer

“Especially in good times, far to many people can be overheard saying “riskier investments provide higher returns. If you want to make more money, the answer is to take more risk”. But riskier investments absolutely cannot be counted on to deliver higher returns. Why not? It’s simple; if riskier investments reliably produced higher returns, they wouldn’t be riskier!” Howard Marks

“At every turn of economic life, the reduction of risk is the key to prosperity. Except in financial markets? Why should it be so?” Andy Redleaf

“Eliminating risk is preferable to finding out where the risk lies” Peter Bevelin

“Investors are paid for being right, not for the possibility of being wrong?” Andy Redleaf

"You can get paid generously for perceived risk, but you don't necessarily get paid for taking real risk." Wilbur Ross

“I put heavy weight on certainty .. if you do that, the whole idea of a risk factor doesn’t make any sense to me. You don’t do it where you take a significant risk.  But it’s not risky to buy securities at a fraction of what they are worth” Warren Buffett

“Risk is not the foundation of profit but its most dreaded enemy” Andy Redleaf

“You have to be in risk management mode all the time, not just when you might be particularly nervous, because it is impossible to time the transitions of markets to crisis conditions.” Paul Singer

“We have all been taught that earning high rates of return requires taking on greater risks… If an investor can make virtually risk-free bets with outsized rewards, and keep making the bets over and over, the results are stunning.” Mohnish Pabrai

“Risk managed at all times and hedged at all times is the only way to actually control risk.”  Paul Singer

“Attention to risk must be a 24/7/365 obsession, with people - not computers - assessing and reassessing the risk environment in real time.” Seth Klarman

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"We think vigilance towards risk is the plow-horse to harvesting solid investment returns"  Allan Mecham

Risk control is invisible in good times but still essential, since good times can so easily turn onto bad times” Howard Marks

“Basically if you study entrepreneurs, there is a misnomer: : People think that entrepreneurs take risk. And they get rewarded because they take risk. In reality, entrepreneurs do everything they can to minimize risk. They are not interested in taking risk. They want free lunches and they go after free lunches.” Mohnish Pabrai

“In the real economy we see all the time people being paid for hard work, for perseverance, for insight, and for experience. It is easiest to see this by starting with some extreme cases. There are many great heroes among the great entrepreneurs. It is almost impossible to think of one who got paid for taking risk. The more brilliant the entrepreneur and grand his achievements, the less true it seems. Was Alexander Graham Bell paid for the risk he might not invent the telephone? Nonsense, he was paid for inventing it. Was Edison paid for the risk that he might not invent a light bulb, or for actually inventing it? Henry Ford was not paid for taking the risk he might not be able to build a car affordable to “any man of good salary” he was paid for actually doing it” Andy Redleaf

"I am sure that any competent judge would be surprised to find how little I ever risked for myself and my partners.  When I did big things, some large corporation like the Pennsylvania Railroad Company was behind me and the responsible party.  My supply of Scotch caution has never been small; but I was apparently something of a daredevil now and then to the manufacturing fathers of Pittsburgh"  Andrew Carnegie

"The received wisdom is that risk increases in the recessions and falls in booms. In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materializing in recessions."   Andrew Crockett

"Any look at the prospect for all types of investments would be grossly incomplete without a careful examination of the risks that one would have to assume to be in the game" Frank Martin

"Baupost, as a long-time participant in the financial markets, has always confronted serious risks.  Our ongoing response to omnipresent risks is to attempt to mitigate as much as we can, intelligently and affordably, while willingly incurring only those risks for which we are being well compensated" Seth Klarman


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