Risk Management

“Our ideas and policies are all structured with one goal in mind: to cultivate a culture that encourages rational decision making that ultimately leads to solid risk-adjusted returns”

“Failure to be honest with yourself is a problem in any business, but it is especially disastrous in an entrepreneurial company, where the risk-reward stakes are so high.”

“It is not the low multiple by itself that provides unusual opportunity nor the high evaluations that carry excessive risk. It is, rather, that the level of investment anticipations is low on one side and high on the other.”

“Most investors underestimate the stress of a high-risk portfolio on the way down.”

“I don’t think the objective of investment should ever be to take a risk in order to get a return. I think the objective of shrewd investment should be to find opportunities which offer a larger return than the average, combined with adequate safety.”

“Please do not forget that as the common stock level advances, the advantages of common stocks appear to be more attractive and the basic need for owning them becomes more persuasive in everybody’s reasoning. Yet in fact, common stocks undoubtedly become riskier as the price advances, and thus the risk increases as the widespread acceptance of common stock develops.”

“It may be a fair generalization to assert that the top levels of most “normal” bull markets are characterized by a tendency to equate stock risks with bond risks.”

“Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earning power through economic changes or deterioration in management.”

“The idea of measuring investment risks by price fluctuations is repugnant to me, for the very reason that it confuses what the stock market says with what actually happens to the owners’ stake in the business.”

“The future, as I see it, is something to be protected against rather than to exploit.”

“Not even the “safest” investment is without some risk and some element of speculation.”

“Stocks are the long duration asset, and their level reflects people’s optimism about the future and their attitude toward risk.”

“The perception of risk is not the same thing as risk.”

“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.”

“Large losses are forever – in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.”

“The concept that investment risk is less a function of the individual company than the price of its stock is not recognized by many investors.”

“Money managers are not stupid. They realize that sticking one’s neck out and producing short-term under performance that differs from an index that is used as the benchmark is risky.”

“Behavioral explanations fit the data better than risk-only stories.”

“The reward for momentum is compensation for crash risk”

“High-quality stocks earn higher risk-adjusted returns.”

“People, it turns out, are not that averse to risk. For many reasons, they are not opposed to risk, but they are opposed to losing and the possibility of loss plays a very significant part in their decision.”

“Risk is when there are multiple possible future states and the probabilities of those different future states occurring are known.”

“It is not forecasts that protect capital, but structure.”

“There’s nothing you can do in the interest of being above average that does not expose you to the risk of being below average.”

“The pendulum of investment psychology is constantly fluctuating between optimism and pessimism, between greed and fear, between credulousness and skepticism, between risk tolerance and risk aversion.”

“Risk cannot be quantified, even after the fact.”

“It’s important to recognize that the riskiness of investing comes only partly from the things you invest in. A lot of the risk comes from the behavior of the participants.”

“Almost any asset can be risky or safe, depending on how other investors treat it.”

“If you think Treasuries have no risk and high yield bonds have risk, the yield spread is there to compensate for the bearing of that incremental risk. The question is whether it is adequate.”

“I think that the business about volatility being risk is a con job which was perpetrated primarily because volatility is machinable.”

“The point is to consider risk control, loss avoidance, at least as important as return.”

“A gambler seeks and makes risks which it is not necessary to assume, whereas the speculator is one who merely volunteers to assume those risks of business which must inevitably fall somewhere.”

“A chief cause of crises, panics, runs on banks, etc., is that risks are not independently reckoned, but are a mere matter of imitation. A crisis is a time of general and forced liquidation.”

“Risk is not a number — it is a feeling”

“Risk is what’s left over when you think you’ve thought of everything.”

“Risk to us goes back to not paying attention to how one does in the short term.”

“What’s a hedge fund? It’s not an asset class, it’s a compensation scheme.”

“We use the term risk all too casually, and the term uncertainty all too rarely.”

“Neither regulation nor memory is a perfect protection against the will to delude one’s self or others. If people are sufficiently persuaded of their own wizardry or that of others, they and their money will be separated.”

“Forecasting is a notoriously underpaid profession, and extremely risky to boot, so I avoid it.”

“Concentration in great companies is less risky than diversification into mediocrity”

“Risk is what happens when expectations fail.”

“If you protect the downside, the upside will take care of itself.”

“Opportunity comes disguised as risk.”

“The biggest investment risk is not volatility, but permanent loss of capital.”

“Risk is not volatility; risk is paying too much for a business”

“Diversification cannot protect against ignorance.”

“We get protection by being price-conscious and by being extremely knowledgeable about our holdings.”

“The goal is to make good returns with less risk. Risk is not the same as volatility. It’s very hard to measure risk.”

“I would like to see more volatility in the markets. Small shocks remind us that a bigger shock might occur. And, we protect ourselves to some extent.”

“Diversification protects against ignorance, not insight.”

“Volatility is often a symptom of risk but is not a risk in and of itself. Volatility obscures the future but does not necessarily determine the future.”

“Risk means the chance of being wrong — not always in an adverse direction, but always in a direction different from what we expected.”

“Risk management means protecting oneself from the adverse and unexpected decisions others may make and, in the process, making better decisions than they do.”

“In the end, risk management is about consequences.”

“The biggest risk is not knowing what you are doing.”

“Managers do not create large alphas by being conventional. They do so by taking the risk of being wrong and alone.”

“Diversification of risk matters not just defensively, but because it maximizes returns as well, because we expose ourselves to all of the opportunities that there may be out there.”

“Unless you are that rarest of birds, someone who is cool under the rapid-fire, high-pressure decision making required to maximize your returns, let others take such risks, and allow your portfolio to plug along at a slower speed. In investing, tortoises tend to win far more often than hares over the turns of the market cycle.”

“Risk in our world is nothing more than uncertainty about the decisions that other human beings are going to make and how we can best respond to those decisions.”

“At its root, risk is about mystery. It focuses on the unknown, for there would be no such thing as risk if everything were known.”

“Risk is about how we make decisions, and only incidentally about the math that we employ to reach those decisions.”

“Risk is about dealing with problems to which there is no certain solution.”

“When inflation is low, you feel that you know more about the future, and are much more willing to take risks.”

“Risk-taking is an inevitable ingredient in investing, and in life, but never take a risk you do not have to take.”

“The greatest risks are the risks that we don’t see and the most difficult problem is in preparing in advance for that kind of thing.”

“The trick in risk management is in recognizing that normal is not a state of nature, but a state of transition and that trend is not destiny.”

“I don’t think volatility is an altogether irrelevant proxy for risk, even though, to a cool, dispassionate investor with a long-term time horizon, volatility is wonderful.”

“You have to say to yourself, “If I’m right, how much am I going to make? If I’m wrong, how much am I going to lose?” That’s the risk/reward ratio.”

“People worry about the riskiness of stocks, but bonds can be just as risky.”

“Even in the highest grade securities, there is a certain inescapable speculative risk.”

“Those who understand debt cycles can protect themselves.”

“The biggest risks are the ones you don’t see.”

“True diversification comes from balancing risks”

“The investment counsel business, as it is traditionally practiced, and probably as it should be practiced, is a simple process of making sure that clients never have so much risk exposure that their capital or standard of living can be impaired by some specific negative surprise.”

“After a stock market decline, people may perceive more risk than before when, in fact, the decline may have taken some of the risk out of the market.”

“It’s not as simple as having timid people and bold people. Some people will be risk averse in one circumstance and not so averse in another. It’s oversimplifying human nature to think we can put people into those two categories as the only psychological measure we use.”

“Taking risks today for tomorrow’s reward is both the most challenging and difficult of tasks. Unbridled optimism must be tempered with reality.”

“Rather than focus on numerical indexes in investment decisions, the investor should focus on unique characteristics that protect the investment from competition. Thus bar to access is a critical element in the evaluation.”

“I am very focused on understanding the downside. And I have a pretty good track record, but it’s not perfect. You can’t play at this level without some pretty big highs and lows.”

“Investors need to pick their poison: Either make more money when times are good and have a really ugly year every so often, or protect on the downside and don’t be at the party so long when things are good.”

“We try to protect against tail risk: the risk of unlikely but possible events that could be catastrophic.”

“People always want to believe that this time is different, that there’s something new under the sun, and that through their own ingenuity they can wish away risk.”

“Risk is how much can you lose and what are the chances of losing it.”

“Volatility is not risk. And historic volatility does not necessarily project future volatility.”

“The way I would think about risk aversion is most people would not want to toss a coin for their entire net worth.”

“It would be silly to expect every bear market to turn into the Great Depression. It would be equally wrong to expect that a fall from overvalued, to more fairly valued, couldn’t badly overshoot on the downside.”

“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred.”

“The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.”

“Risk is not inherent in an investment; it is always relative to the price paid.”

“Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.”

“The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk.”

“It is only in a bear market that the value investing discipline becomes especially important because value investing, virtually alone among strategies, gives you exposure to the upside with limited downside risk.”

“Value investors thrive not by incurring high risk (as financial theory would suggest), but by deliberately avoiding or hedging the risks they identify.”

“Higher risk investments often erode one’s capital and produce lower returns — the worst of all investment worlds. Higher-returns-for-higher-risks only applies on average and over time.”

“When picking a list of growth stocks for long-term investment, broad diversification of the risk is the first and most important principle to follow. No one can look ahead five or ten years and say what is the most promising industry or the best stock to own.”

“Once a business is well established, the greatest opportunity for gain is afforded during the period of growth in earning power. The risk factor increases when maturity is reached and decadence begins.”

“The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period.”

“Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.”

“I am willing to trade the pains (forget about the pleasures) of substantial short term variance in exchange for maximization of long term performance. However, I am not willing to incur risk of substantial permanent capital loss in seeking to better long term performance.”

“Diversification is protection against ignorance, but if you don’t feel ignorant, the need for it goes down drastically.”

“The greater the potential reward in a value portfolio, the less risk there is.”

“If you risk something that is important to you for something that is unimportant to you it just doesn’t make sense.”

“I’m in the insurance business, and anything that can happen will happen.”