Monday 12 June 2017

Good Proxies of Risk

Risk is embedded in how much you know about the business and how confidently you can predict the future outcome.

Circle of Competence:  The more certain you are about the business outcome, the less risky it is.

Time Horizon:  Shorter the time-horizon, higher the risk.  Benjamin Graham:  "In the short term, markets are a voting machine but in the long-term, it is a weighing machine."

Quality of Business:  The higher the likelihood that business can keep earning above average returns, the better the business.

Quality of Management:  Is Management looking after minority interest.


[Standard Deviation and Beta are NOT good proxies of risks.]

No comments: