We recently engaged with an insightful video presentation by Howard Marks on the topic of risk. Howard is the author of the book “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor”. We’d like to share some key insights with you. It’s important to understand risk beyond the textbook definitions.
We often hear that risk is all about volatility, but that’s not the whole story. In reality, risk is about the probability of loss. It’s not just about how much an investment’s value bounces up and down, but the chance that you might lose your hard-earned cash.
Think about it this way: If you buy a share for $1 and sell it a year later for $2, was it risky? Surprisingly, we can’t tell just from the outcome. It could have been a safe bet or a risky gamble where you got lucky.
Risk isn’t just one thing. It comes in many forms, like:
One of the biggest mistakes in investing isn’t buying at the high point, but selling at the low point and missing the recovery.
Here are four key points to consider:
Here’s something that might surprise you: Risk is often counterintuitive. For example:
Howard also made another mind-bending point: High-quality assets aren’t always safer than low-quality ones. It all depends on the price. Even the best companies can be risky investments if their shares are priced too high.
So, how can we use this knowledge? Here are a few thoughts:
Remember, investing isn’t about avoiding risk altogether – it’s about understanding and managing it wisely. Let’s chat more about how these ideas apply to your specific situation. After all, every investor’s journey is quite unique!
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)