Antti Ilmanen on risk

Risk is ultimately more about survival than volatility.

~ Antti Ilmanen, AQR Capital Management

John Hempton on risk management and position sizing

The size of the position has to be determined by what you can lose because it's the fat ugly tails that kill you in this business.  It's not that I don't like to win.  It's that I hate losing.  "Hate losing" is necessary for survival.  I do like to win.  Believe me, I like to win.  The business is built around taking care of the losses.

~ John Hempton, interview, HedgeD, With A Capital "D", March 22, 2023

Ben Carlson on surviving bear markets

Surviving bear markets requires you to manage both volatility and your emotions.

~ Ben Carlson

Randall Forsyth on investing and risk taking

It has been observed that there are bold pilots, and there are old pilots, but there aren't any old, bold pilots.  The same may be said for investors.

~ Randall W. Forsyth, "Up & Down Wall Street," Barron's, October 23, 2021

Warren Buffett on managing risk

Never test the depth of the river with both feet.

~ Warren Buffett

Benjamin Graham on risk

Successful investing is about managing risk, not avoiding it.

~ Benjamin Graham

JIm Grant: "Life is a matter of tradeoffs"

Life is a matter of tradeoffs. And early on people would plague you if you held this view in public by saying, “You mean to tell me that you are willing to trade off profits for human lives?”  Well no, I’m willing to trade off risks, and it’s what we all do whether we realize or not, whether we can express this or not.  We are all, at least subconsciously, living according to our tolerance for risk.  We look both ways or no, we don’t look both ways.  We scrupulously observe 55 miles an hour or we are young and quick and bold and drive 75 miles an hour and probably not run a risk to ourselves or others.   So people by and large – not exclusively and not entirely, but people by and large know these things about themselves.

~ Jim Grant, "Living Economic History: Q&A with Jim Grant," The Coffee Can Portfolio, December 9, 2020

Ryan McMaken on risk management

Yesterday, I saw a morbidly obese man riding a motorcycle down the highway. With no helmet. He was wearing a mask, though!

~ Ryan McMaken, tweet, September 15, 2020

Ken Kolosh on the difficulty in assessing risk

Human beings, we just are not good at estimating our own risk.  We tend to fixate or focus on the rare, startling event, like a plane crash or a major flood or a natural disaster, but in reality, when you look at the numbers, the everyday risks that we face and have become so accustomed to form a much greater hazard.

~ Ken Kolosh, manager of statistics at the National Safety Council, "Opioids, Car Crashes and Falling: The Odds of Dying in the U.S.," The New York Times, January 14, 2019

Americans are more likely to die of an opioid overdose than a car crash.

Rupal Bhansali on risk management and investing

I think the key variable is thinking about risk management before you think about return management because losing money is the albatross of compounding money.

~ Rupal Bhansali, "Reduce Your Risk to Enhance Returns," Stansberry Investor Hour, 42:00 mark, June 25, 2020

Chris Mayer on investing and risk management

In building a portfolio, you want to be thoughtful about risks.  You don't want one bullet to kill you.

~ Chris Mayer, "Black Swans and Silver Linings: Q&A with Chris Mayer," The Coffee Can Portfolio, June 15, 2020

Kevin Duffy on Covid-19 and managing risk

We all have to live in a world of risks with limited resources to guard against them. Crawling under a rock is not an option and to do so would risk certain death.

We all have to manage risk and deal with trade-offs. Are you willing to get on an airplane and take a 1 in 11 million chance of dying? A lot of people have pets even though 1 out of 8 million will die of a dog bite this year. One in 8,000 Americans die in car crashes every year.

What are the risks of dying from Covid-19? By the evidence so far, if you're under 40, practically nil. In Italy, the worst affected, the death rate is 1 in 30,000. Perhaps that goes higher. In China it appears the worst is over and people are slowly returning to their normal lives (1 in 440,000 died). In the U.S., 94 people have died so far. That will certainly go up.

Nobody knows for certain what the death toll in this country will be. I just got a call from a physician friend who, after being on the CDC website, thought 40-70% of the population could be infected and the death rate could be 3.8%. At 50%, that would mean 6 million U.S. deaths, or 1 in 50!

If Italy is 1 in 30,000 and China is 1 in 440,000 and South Korea is 1 in 640,000, how is 1 in 50 in the U.S. even remotely possible? This is why some people take the predictions of complex phenomena - hurricanes, pandemics and the global economy - by "experts" with a healthy grain of salt.

Over-preparing for a remote event can be just as dangerous as under-preparing for a more certain event. Of course, take precautions, but the draconian measures being taken (especially by the authorities shutting down businesses) are causing certain pain against an uncertain risk. That is leaving many people with fewer resources to deal with life's contingencies.

Some people live in a fantasy world where they think resources are unlimited. These are typically the same people who exaggerate the risks of the coronavirus. They think the federal government will magically come to the rescue of every business establishment destroyed by state and local government closures.

That money will come from somewhere. Boomers, are you prepared to have your social security checks reduced? Welfare recipients, are you prepared to get less? Military employees, are you prepared to get laid off? Savers, are you prepared to have your savings inflated away?

The era of Santa Claus economics is coming to an end.

~ Kevin Duffy, Facebook post, March 17, 2020

Nassim Taleb on risk management

Wisdom is knowing what to worry about and what to ignore.

~ Nassim Taleb, tweet, February 27, 2020

Warren Buffett on prudence

The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.

~ Warren Buffett

Christopher Ailman on the limits of diversification this cycle

For the past 30 to 40 years, the common wisdom has been that diversification reduces risk, and the main diversifying asset has been fixed income. With interest rates in the U.S. at 200-year lows and negative interest rates elsewhere in the world, you can’t say fixed income is a diversifier.

~ Christopher Ailman, chief investment officer of CalSTRS, "The Trendsetter: Christopher Ailman of CalSTRS," Barron's, September 23, 2017

Dylan Grice on the paradox of risk management and risk managers

In the broadest sense possible, the greatest and most fundamental risk is the risk of not knowing what you're doing.  To the extent these "risk models" trick "risk managers" into thinking they do, they are dangerous because they blind users to the true nature of risk.  The paradoxical outcome is that such risk managers are making the financial world much riskier than it would otherwise be.

~ Dylan Grice, "The Language of Inflation," Edelweiss Journal, November 4, 2013

Nassim Taleb on the illusion of stability of pegged currencies in Southeast Asia in 1997

[W]e are not sure that the world we live in is well charted.  We will see that the judgment derived from the analysis of these past attributes may on occasion mislead you and take you in the opposite direction.  Sometimes market data becomes a simple trap; it shows you the opposite of its nature, simply to get you to invest in the security or mismanage your risks.  Currencies that exhibit the largest historical stability, for example, are the most prone to crashes.  This was bitterly discovered in the summer of 1997 by investors who chose the safety of pegged currencies of Malaysia, Indonesia, and Thailand (they were pegged to the U.S. dollar in a manner to exhibit no volatility, until their sharp, sudden, and brutal devaluations.)

~ Nassim Taleb, Fooled by Randomness, 2nd Edition, p. 102

Barton Biggs bails out in August 2011

I've taken some risk off, and I hate to do it, I think it's probably the wrong thing to be doing, but I'm a fiduciary to a certain extent, and I've got to protect my capital.

I don't understand now what's going on. I suspect that we're now into a high-frequency trading, momentum-driven cascading downturn. And I want to get out of the way of it.

~Barton Biggs, managing partner and co-founder, Traxis Partners, Bloomberg TV, August 8, 2011

David Bianco says plays the EM in 2011, but do it through the S&P so he can make money

When we talk to clients and we look at portfolios that are largely cash, Treasuries, municipal bonds and gold, we point out that that's just not a balanced portfolio. It's a portfolio with its own kind of risks, and a portfolio that, over time, is not going to keep up with your wants and desires for funding your long-term financial needs.

Within the S&P 500, our advice is to stick with strength in 2011. And strength in the world is the emerging economies. But we want to point out that there are lots of plays on emerging economy growth within the S&P 500, particularly the technology, energy, industrial and materials sectors.

~David Bianco, chief US equity strategist, Bank of America Merrill Lynch, "Experts agree: Get over your fear and get back into stocks", USA Today, December 17th, 2010

Jeff Applegate on stock market risk during the Tech Bubble (2000)

Is the stock market riskier today than two years ago simply because prices are higher? The answer is no.

~ Jeffrey M. Applegate, former chief investment strategist, Lehman Brothers, BusinessWeek, April 10, 2000