Interpreting Investment Risk
The business of investing is all about predicting the future. When an investor endeavours to predict the unknown and when his thoughts and actions influence the outcome of events, it involves taking risk. Most times, retail investors flit from being risk averse to being risk-seeking individuals. Conventional wisdom is that when the indices are constantly moving up in the midst of a raging bull market, an investment in stocks is considered least risky. When the markets face correction and move downwards, everyone panics and presses the ‘sell’ button. Stocks are then considered risky assets. Sadly, as most serious, value investors are aware, the converse is true. Risk is at its lowest when markets are in free fall and is at its peak when markets defy gravity. We must understand that risk is being accumulated as the markets move up and come down when markets collapse. ...

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