Decline in Market Price of holdings is not true risk or loss.

It is our conviction that the bona fide investor does not lose money merely because the market price of his holdings declines.  

Hence, the fact the decline may occur does not mean that he is running a true risk or loss.

If a group of well-selected common stock investment shows a satisfactory overall return as measured through a fair number of years then this group of investment has proved to be safe.

During that period, its market value was bound to fluctuate and likely than not, would sell for a while under the buyer's cost.

If that fall makes the investment risky, it would then have to be called both risky and safe at the same time.

This confusion may be avoided if we apply the concept of risk solely to a loss in value which:

• either is realized through an actual sale 
• or is caused by significant deterioration in the company's position 
• or more frequently, perhaps is the result of paying an excessive price in relation to the intrinsic worth of the security.

Many common stocks involve risks of such deterioration but it is our thesis that a properly executed group of investment in common stocks does not carry any substantial risk of this sort.


Ref:   Intelligent Investor by Benjamin Graham



Additional notes:

It is conventional to speak of good bonds as less risky than good preferred and that the latter as less risky than good common stocks.

From this was derived the popular prejudice against common stocks because they are not safe but we believe that what is here involved is not a true risk in the useful sense of the term.

If an investor's list has been competently selected in the first instance, there should be no need for frequent or numerous changes to the portfolio.

Risk versus Safety

Safety and Risk: How do you define a perfect investment?

Millions buy stocks, bonds, or mutual funds, purchase real estate, or make similar investments. They all have reasons for investing their money. Some people want to supplement their retirement income when they reach age 65, while others want to become millionaires before age 40. Although each investor may have specific, individual goals for investing, all investors must consider a number of factors before choosing an investment alternative.

Safety and Risk

How do you define a perfect investment?

For most people, the perfect investment is one with no risk and above average returns. Unfortunately, the perfect investment does not exist, because of the relationship between safety and risk. The safety and risk factors are two sides of the same coin. Safety in an investment means minimal risk of loss. On the other hand, risk in an investment means a measure of uncertainty about the outcome.

Investments range from very safe to very risky.

At one end of the investment spectrum are very safe investments that attract conservative investors. Investments in this category include government bonds, certificates of deposit, and certain stocks, mutual funds, and corporate bonds. Real estate may also sometimes be very safe invesment.

At the other end of the investment spectrum are speculative investments. A speculative investment is a high-risk investment made in the hope of earning a relatively large profit in a short time. Such investments offer the possibility of larger dollar returns, but if they are unsuccessful, you may lose most or all of your initial investment. Speculative stocks, certain bonds, some mutual funds, some real estate, commodities, options, precious metals, precious stones, and collectibles are high-risk investments.

----