Risk Revisited Again

The operators of racetracks take a dim view of bettors who engage in “past-posting”: trying to get a bet down after the race is over (and the…

If you make an investment in 2012, you’ll know in 2014 whether you lost money (and how much), but you won’t know whether it was a risky investment –…

The economist Hyman Minsky has reminded us, “Each state nurtures forces that lead to its own destruction.” All of history testifies to the truth of…

The information we’re able to estimate – the list of events that might happen and how likely each one is – can be used to construct a probability…

Backgammon players are usually quite happy to make a move that will enable them to win unless the opponent rolls twelve, since only one combination…

Risk shows up lumpily. If we say “2% of mortgages default each year,” and even if that’s true when we look at a multi-year average, an unusual…

These days, the fear of losing money seems to have receded (since the crisis is all of six years in the past), and the fear of missing…

As the graphic at the bottom of page 8 illustrates, however, investing further out on the risk curve exposes one to a broader range of investment…

I touched above on concentration risk, but we should also think about the flip side: the risk of overdiversification. If you have just a few holdings…

Thus their portfolios may lean too far toward controlling risk and avoiding embarrassment (and they may not take enough chances to generate returns).…

Finally, I want to mention a new concept I hear about once in a while: upside risk. Forecasters are sometimes heard to say “the risk is on the upside…

“Value at Risk” was supposed to tell the banks how much they could lose on a very bad day. During the crisis, however, VaR was often shown to have…

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