Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

compensation for risk

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I’ll give the hat tip to Bennet Sedacca for putting it so succinctly: “If you are not being compensated for taking risk (including credit risk), do not take risk.”

All too often investors look at the percentage returns of an investment and pay scant attention to the risks. By risk, I don’t mean the nonsense of Sharpe ratios, etc., but true risk: permanent loss of capital.

The nature of the markets is the figurative Black Swan. Unexpected things happen. Regularly. A recent example was this summer when a hedge fund manager at a major Wall Street institution said that their computer models predicted that a particular market event wouldn’t happen for a million years. It happened three days in a row for them.

Understand what happens to the best laid plans of mice and men.


Written by heyercapital

October 2, 2007 at 2:33 pm

Posted in Austrian Econ

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