Minyan Mailbag: Not Looking At Risk
Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.
Whether you're talking about hurricanes in the southeast, floods in the Midwest, blizzards in the Rockies, earthquakes all over California, devastating brushfires in Malibu, or major terrorist attacks everywhere, the world continues to move along as if none of these things can happen, even though all the evidence suggest that they do happen, and happen with some regularity. You don't need to go far to see any of this playing out, both in financial and real estate markets.
At MIM2, Tony Dwyer noted that though the sun will definitely go dark someday, it's a lousy trade. These regular risks are not the same thing. The exact dates of these events can't be foreseen, but it is all but certain that they will happen from time to time, maybe many times in our lives and need to be part of the overall risk picture we all consider for any reasonable investment horizon.
I agree! Over the last couple years, betting for the housing bubble to burst or a consumer immense consumption slowdown was a losing trade (though intellectually it made a lot of sense). However, being aware of the risk, though it has not paid off so far, is an extremely important aspect of managing risk in one's portfolio.
I loved Tony Dwyer's comment - one of the most memorable I heard at MIM2. I agree with him, which is why I am NOT sitting 100% in cash waiting for the world come to end.
However, another memorable quote came from Prof. Succo namely, "You cannot look at equities without looking at risk" - and it seems that is exactly what the market is doing - not looking at risk.
The fact that these events are viewed as completely non-recurring is, in my opinion, just another reflection of the fact that risk is increasingly ignored in our financial markets and our society as a whole.
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