What is risk and are you measuring it properly? Are you considering risk when investing in the stock market. It is all about the investing risk reward but first focus on the risk and make a proper investment risk analysis.
Q2 hedge fund letters, conference, scoops etc
Ben Graham On The Investing Risk Reward
Transcript
Do you know what these risk do. Measure it properly do approach investing from a good risk reward perspective and do you see risk as academics see it or as proper billionaire investors see it investing is all about first risk if you listen to the billionaires like Warren Buffett said Tharman roday or Charlie Mongar or about volatility. If you listen to academics that are only rich because of the inflation of academic prices in the last 40 years nothing else because you overpay for those degrees with all the student loans and everything. So that's inflation big inflation. Apart from that by the end of this video you should know exactly how is risk defined. From an academic and from an investing perspective what is the best approach to risk for yourself. Because that's the key. Always investing is about you first and then you're going to see also examples of how one method works. And the other method works a little bit about the history of Friske. To quote Seth Klarman. What most investors do wrong is they are primarily oriented toward return how much they can make and pay little attention to risk. So this media is all about paying attention to risk. The definition of investment risk that you learn at school investment risk is usually defined as the sum of the following market risk that includes equity risk currency risk interest rate risks and then a dozen of other factors like liquidity concentration credit risk inflation rates Corazón risketc. However all those things then supposedly go back to what these markets risk and the general security is also compared to market risk.
Then we come to the academic measurement of risk that's different than what the billionaires do. Academics measure risk as a standard deviation what the standard deviation standard deviation is a measure of volatility. How much the price of a security is more volatile in relation to a portfolio or a market. The more volatile stock is the more it's considered risky. So risk is measured from what the market says about a stock of positively investors. They measure risk from what the business carries. So what is the business risk. What can go wrong with the business that they didn't see in the futureetc. Not what the market says about it. Buffett's definition of risk is then again different from standard deviation. Risk is not knowing what you're doing. That's something that can't be measured by standard deviation. What you don't know right Delio who is famous for his or whether portfolio where it is all about proper allocation or phrase command uncorrelated asset classes and nothing else is a bit more vague than Barford and says risk comes from what you don't know. And that's a big difference from learning as Buffett you can learn what you don't know. But according to you there is always something you don't know however to be more specific inapplicable. Klarman describes the risk by both the probability and the potential amount of loss. This is the key the probability and the potential amount of flow. So what can go wrong. How much do I lose if that happens. And then compare that to all other investments and compare to their return.
This simply means that the risk includes the probability of something going wrong and the amount of losses things go wrong. To finish with Mongar risk to us is one the per the risk of permanent loss of capital birdmen. They don't care about volatility short term. What can go wrong in a permanent term and the risk of an inadequate return where it means that the investment that delivers lower than in other options they get to invest. At that moment in time with perhaps less less risk. So what the Finnish.
