Howard Marks on risk

People want to be able to take the concept of risk and use it in a formula to do computations.  The only number that’s available to use as a proxy for risk is volatility, or the standard deviation of prices or returns.  That’s not what risk is.  Risk is the probability of losing money, [but] there is no number you can use for that because there’s no place you can look to find out what the probability of a bad outcome is today or what it was six months ago when you made the investment.  So, you can be quantitative but not accurate, or accurate but not quantitative.  You can’t do both.

~ Howard Marks, "Howard Marks on Trump, Risk, Inflation, and Tariffs," Barron's, November 9, 2024

Antti Ilmanen on risk

Risk is ultimately more about survival than volatility.

~ Antti Ilmanen, AQR Capital Management

Bill Miller on risk, real and perceived

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.

~ Bill Miller

Warren Buffett on risk

Risk comes from not knowing what you're doing. 

~ Warren Buffett

Michael Weeks on resilience and financial ruin

Resilience is simply not a matter of size.  A man with $100 million can lose his fortune just as easily as the man with $100 thousand.  There are many roads to ruin, open to rich and poor alike.  Through the ages, fortunes both great and small have succumbed to war, inflation, and confiscation, while many more are squandered each year by those who are overconfident, overleveraged, envious, or simply living beyond their means.

~ Michael Weeks, "Searching for Resilience," Edelweiss Journal, July 7, 2021

Kevin Duffy on investing, risk and volatility

For investors, risk is exposure to permanent loss, not volatility.  In fact, we should welcome volatility as it creates opportunity.

~ Kevin Duffy, "Portfolio Insurance: Buying umbrellas in summer," The Coffee Can Portfolio, April 26, 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 on risk tolerance and life's tradeoffs

I am seventy-four years old and every day I get out of bed I am beating the odds.  The idea of suspending ordinary living pending the arrival of a vaccine is absurd.  Still worse is the forced suspension of the lives of people seventy years younger than I.  My grandchildren, for instance.  “We can’t sacrifice our children out of our own fear,” said Dr. Scott Atlas in so many wise words. 

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 it 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 fifty-five miles an hour or we are young and quick and bold and drive seventy-five 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, "Bulls, Bears, and Beyond: In Depth with James Grant," The Austrian, Jan-Feb 2021

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

Rolf Dobelli on how news media distorts risk assessement

As a result of news, we walk around with the completely wrong risk map in our heads.

• Terrorism is overrated.  Chronic stress is underrated.
• The collapse of Lehman Brothers is overrated.  Fiscal irresponsibility is underrated.
• Astronauts are overrated.  Nurses are underrated.
• Britney Spears is overrated.  IPCC reports are underrated.
• Airplane crashes are overrated.  Resistance to antibiotics is underrated.

We are not rational enough to be exposed to the news-mongering press.  It is a very dangerous thing, because the probabilistic mapping we get from consuming news is entirely different from the actual risks that we face.  Watching an airplane crash on television is going to change your attitude toward that risk regardless of its real probability, no matter your intellectual sophistication.  If you think you can compensate for this bias with the strength of your own inner contemplation, you are wrong.

~ Rolf Dobelli, "Avoid News," p. 2, 2010

Kevin Duffy compares Covid-19 to other fatality risks

Thanks in part to all of the confusion (fake news, politicized science), most people have overestimated the risk of death from the coronavirus. If you're under the age of 50, your chances of dying from the coronavirus if infected are less than 1 in 5,000. Assuming you have a 20% chance of getting infected over your lifetime, the odds of dying are 1 in 25,000. And this assumes our ability to treat this disease doesn't  improve and herd immunity won't reduce the risk of infection. 

How does Covid compare to other fatality risks over a lifetime? 

heart disease = 1 in 6 

cancer = 1 in 7

drug overdose = 1 in 98

car accident = 1 in 106

choking on food = 1 in 2,618

sunstroke = 1 in 7,770

bee sting = 1 in 54,000

dog attack = 1 in 119,000

lightning = 1 in 181,000

plane crash = 1 in 250,000?

Despite these risks, we still drive, fly, own pets, go outside and put unhealthy things into our bodies.

~ Kevin Duffy

Clay Travis on the risks of Covid-19 for college students

What we have in this country is a huge collection of pussy willows: people who don't understand how to assess risk.  Here's an easy assessment: College kids are more likely to die of the seasonal flu than they are of the coronavirus.  Yet we never shut down college campuses for the flu.  They are more likely to die driving in cars to their campuses.  They are more likely to be murdered.  They are more likely to die of a drug overdose.  They are more likely to die from drinking too much alcohol.  They are more likely to die from suicide.  All of those are bigger risk factors for college kids than the coronavirus is.

This represents a monumental failure of American society.  I believe, ultimately, this is going to be looked back on by people with functional brains as the worst decision of American policy since the Vietnam War.

~ Clay Travis, "Mark Cuban is ANGRY about NBA ratings, spring football IDIOCY, MLS booing, MLB silence," YouTube, 5:45 mark, August 13, 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.

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 the value of bear markets

Only when the tide goes out do you discover who's been swimming naked.

~ Warren Buffett

William Shedd on risk

A ship in a harbor is safe, but this is not what a ship is built for.

~ William Shedd, theologian

Elbert Hubbard on risk

The greatest mistake you can make in life is to continually be afraid you will make one.

~ Elbert Hubbard, philosopher

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