One of the eternal topics in finance and investments is the question how to properly measure risk. Modern portfolio theory uses volatility or variance as the most common measure of risk. I, together with most finance professionals, use it time and again as a proxy for risk, knowing full well that for most people, volatility does not describe risk. After all, volatility is a symmetric measure that measures deviations from the mean both to the downside and the upside. And in my career, I have never met an investor who complained abut getting a return of 20% when she was expecting 5%. Yet, deliver -10% return to the same investor and the reaction will be quite different…
Finance professionals are just like you and me
Finance professionals are just like you and…
Finance professionals are just like you and me
One of the eternal topics in finance and investments is the question how to properly measure risk. Modern portfolio theory uses volatility or variance as the most common measure of risk. I, together with most finance professionals, use it time and again as a proxy for risk, knowing full well that for most people, volatility does not describe risk. After all, volatility is a symmetric measure that measures deviations from the mean both to the downside and the upside. And in my career, I have never met an investor who complained abut getting a return of 20% when she was expecting 5%. Yet, deliver -10% return to the same investor and the reaction will be quite different…