Risk Management

Risk management investing articles on risk, diversification, asset allocation, preservation of capital, asset correlations, bubbles, hedging, etc.

Why Value Investors Should Avoid Most Value ETFs and Mutual Funds

February 7, 2012

Avoid Value ETFs and Mutual Funds Investors, especially value investors, should avoid most value ETFs and mutual funds because they are over weighted in high risk investments. As a value investor I am always looking for stocks that sell at low prices compared to their potential cash flow and risks associated with the underlying company. [...]

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Making Probability Theory Practical for Investment

February 1, 2012

Making Probability Theory Practical One of my favorite sayings is “Anyone who tells you they know what the stock market will do in the short term is either a fool or a liar”. The market cannot be predicted on a daily, weekly, monthly or yearly basis. This is NOT true for long periods of time; [...]

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Risk management investing articles on risk, diversification, asset allocation, preservation of capital, asset correlations, bubbles, hedging, etc.

Long Term View and Analysis of Risk: How it Affects Your 2012 Asset Allocation

January 16, 2012

2012 Long Term View The beginning of the year is a good time for asset allocation and risk management analysis for 2012. A view of the current long term investment environment is the first step. Long Term View The last 12 years have seen two bubbles; the dot.com bubble, and the housing bubble. Both market [...]

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Modern Investment Portfolio Theory – Why Should You Care?

January 13, 2012

Modern Portfolio Theory Modern Investment Portfolio Theory was developed in the 1950’s with the belief that portfolio returns could be maximized for a given amount of investment risk by combining assets in a particular manner. The theory is that, using relationships between risk and return such as alpha and beta, and defining risk as the [...]

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Risk management investing articles on risk, diversification, asset allocation, preservation of capital, asset correlations, bubbles, hedging, etc.

What is Alpha and Beta? How Do They Relate to Investment Risk?

January 12, 2012

Alpha and Beta We continue our weeklong series on investment risk by looking at alpha and beta. These are two common measurements of investment risk that help an investor understand portfolio risk. By having a better understanding of investment risk an investor is able to mitigate risk and optimize returns. Difference Between Alpha and Beta [...]

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Standard Deviation and Probability – The Effect on Financial Decision Making

January 11, 2012

Standard Deviation and Probability Standard Deviation and Probability make us better risk managers because they cause us to consider lower probability outcomes in our financial decision making process. What is Standard Deviation? Standard deviation is a standard measure of investment risk. It is a historical statistic measuring volatility and the dispersion of a set of [...]

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Risk management investing articles on risk, diversification, asset allocation, preservation of capital, asset correlations, bubbles, hedging, etc.

Types of Investment Risk and Rate of Return in Portfolio Management

January 10, 2012

Investment Risk Portfolio management requires understanding the types of investment risk and rate of return in today’s environment. It is a given that an investor must take risk in order to achieve rates of return above a risk-free rate of return. Because the risk-free rate of return (i.e. Treasury Bills rates) is near zero; most [...]

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Portfolio Management: Part I of Series on Investment Risk and Returns

January 9, 2012

Basics of Portfolio Management The basics of portfolio management are investment risk and return. Everything a portfolio manager does; planning, asset allocation, diversification, risk management, investing strategies, etc., boils down to trying to affect investment risk and return. This is why it is critical to understand investment risks and how it relates to investment returns. [...]

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Risk management investing articles on risk, diversification, asset allocation, preservation of capital, asset correlations, bubbles, hedging, etc.

Definition and Purpose of Portfolio Diversification

January 4, 2012

Definition of Diversification The definition of diversification is the act of, or the result of, achieving variety. In finance and investment planning, diversification is a portfolio strategy combining a variety of assets to reduce the overall risk of an investment portfolio.   Purpose of Portfolio Diversification The purpose of portfolio diversification is portfolio risk management [...]

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How to Minimize Investment Loss with an Asset Allocation Strategy

December 29, 2011

Minimize Investment Loss In our last post, “Probable Maximum Investment Loss and Asset Allocation” , we learned how to tailor our asset allocation to our assumed probable maximum investment loss. Now we can further explore the asset allocation strategy that can successfully maneuver through the volatile times we currently live in. Investment Loss and Asset [...]

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