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Scott M Juds – Conquering The Seven Faces of Risk
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Risk is not a one-dimensional problem cured by a single dose of diversification.
It’s a multidimensional problem, and diversification’s passive risk reduction is only just the start.
At least since Markowitz developed Modern Portfolio Theory 65 years ago, risk has generally been measured as the standard deviation from average return.
However, Behavioral Economics (and even the dictionary) say risk is really about the loss of value, which is quite different from volatility.
Risk has at least seven unique faces, including
(1) Single-Stock Risk,
(2) Market Volatility,
(3) Bear Market Crash,
(4) Momentum Loss,
(5) Backtesting Deception,
(6) Strategy Hired/Fired Late, and
(7) Retirement Savings Will Not Be Enough.
The elephant in the room for the majority of people facing retirement is a serious retirement savings shortfall – which makes their most serious risk about earning sufficient returns. Fortunately, a Royal Society Fellow, a National Medal of Science winner, and a trio of Nobel Laureates have laid the foundation for active risk reduction and forever changed the game.
The good news is two-fold:
(1) the book’s principles and methods are described in a manner most ordinary investors will easily grasp, and
(2) while it is truly complicated under the hood (like my car), software tools make it easy to drive. So, buckle up, turn the page, and let’s go for a ride!
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