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.]

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