Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
For me I try reduce the range between the peaks and valleys within my own porfolio. Holding a good amount of cash, as I do, helps dappen the fall during a market downdraft. I'll have to go with MJG on this one and select the portfolio with a 10% standard deviation over the one with 20% being that they both offered a 10% annual return. Ask yourself ... Do you want a smooth ride or a rough one?
Risk to one investor might mean opportunity while it might be something different, and unknown, to another.
It's amazing how often financial articles appear after a debate has been initiated on MFO that addresses the same issue. Here is a Link to an article that discusses the volatility argument being debated in our posts:
The writer illustrates his position by constructing asset allocation portfolios that demonstrate the primary issues. We all can do the same type of analyses by accessing the Portfolio Visualizer website and its useful tools. It is an easy task to design alternate portfolios and examine their historical performance.
Be sure to examine different timeframes. I have done so, and, not surprisingly, results are timeframe sensitive. Have fun!
I anticipate that Ted will reference this same article when he completes his daily postings.
EDIT: The referenced article talks about the need for rebalancing which cycles us back to the original topic of these postings. What goes around comes around! I've also added the Link to Portfolio Visualizer:
One of my kids studied economics and later got an MBA from where French is a professor; after I emailed the Buffett piece, I got this response:
This is interesting; I did not know these thoughts of Buffett. And I've always felt suspicious of risk = volatility since I was taught it. ...Alas, French is a Tuck professor, so this was all gospel ....
In this Buffett discussion; the whole quote is needed.
The point is that Buffett is saying nothing more then he has always said. Invest for the long term in a widely-diversified stock portfolio. And when you consider inflation, it is easy to understand the meaning of his "currency-denominated instruments" comment.
"Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments — far riskier investments — than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray."
"as Buffett outlines, just because markets were volatile doesn't mean that for a long-term investor — which is the prism through which Buffett sees markets — the stock market was necessarily riskier. "
Right, it should go without saying that with all short-term investing, volatility sure as heck equates to risk, without question. Game of chance and all that.
Right, it should go without saying that with all short-term investing, volatility sure as heck equates to risk, without question. Game of chance and all that.
I think we can conclude that tautologically, empirically, antidisestablishmentarianism and more importantly when you consider Higgs boson the two non parallel lines have met and the alpha has become the omega. This would bring a smile to the Buddha's face.
Please tell me that your closing paragraph is a joke. That it is a red herring designed to bring a smile not to Buddha's face, but rather to us common folk.
I'm sure not comfortable with complex particle physics, especially those discoveries recently made. My distant memory of a Higgs boson has to do with the Big Bang theory and, parallel lines don't converge in Euclidean geometry except at infinity or other forms of so-called non-Euclidean geometries.
I sure have many physics and investment knowledge shortcomings. The purpose of your physics comments escape me, especially with respect to our volatility discussions. I hope you were kidding. Please tell me that is so. If not, please explain the linkage. I'm puzzled.
MJG - I do suspect he's pulling your leg there. However, I'd appreciate if you would use this opportunity to weigh in on and explain particle entanglement. Apparently it's proven scientific fact. But I'm still trying to get my head around it, not having a physics or engineering background. Your thoughts on the topic?
None! I'm totally unfamiliar with particle entanglement.
You, I, and a host of other folks share our bewilderment. And that even includes Albert Einstein. Although he was a major player in formulating Quantum theory, he too was unhappy with some elements of its direction and interpretation. As this exchange reinforces, the same is true for financial theory and its interpretations.
I forget who said it, but "20/20 hindsight is the world's most exact science".
Comments
For me I try reduce the range between the peaks and valleys within my own porfolio. Holding a good amount of cash, as I do, helps dappen the fall during a market downdraft. I'll have to go with MJG on this one and select the portfolio with a 10% standard deviation over the one with 20% being that they both offered a 10% annual return. Ask yourself ... Do you want a smooth ride or a rough one?
Risk to one investor might mean opportunity while it might be something different, and unknown, to another.
@MJG, @Old_Skeet,
Spot on with both of yours comments. Risk does present that proverbial fork in the road.
It's amazing how often financial articles appear after a debate has been initiated on MFO that addresses the same issue. Here is a Link to an article that discusses the volatility argument being debated in our posts:
http://awealthofcommonsense.com/2016/09/an-allocation-only-a-mother-could-love/
The writer illustrates his position by constructing asset allocation portfolios that demonstrate the primary issues. We all can do the same type of analyses by accessing the Portfolio Visualizer website and its useful tools. It is an easy task to design alternate portfolios and examine their historical performance.
Be sure to examine different timeframes. I have done so, and, not surprisingly, results are timeframe sensitive. Have fun!
I anticipate that Ted will reference this same article when he completes his daily postings.
EDIT: The referenced article talks about the need for rebalancing which cycles us back to the original topic of these postings. What goes around comes around!
I've also added the Link to Portfolio Visualizer:
https://www.portfoliovisualizer.com/
Best Wishes.
This is interesting; I did not know these thoughts of Buffett. And I've always felt suspicious of risk = volatility since I was taught it. ...Alas, French is a Tuck professor, so this was all gospel ....
The point is that Buffett is saying nothing more then he has always said. Invest for the long term in a widely-diversified stock portfolio. And when you consider inflation, it is easy to understand the meaning of his "currency-denominated instruments" comment.
"Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments — far riskier investments — than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray."
"as Buffett outlines, just because markets were volatile doesn't mean that for a long-term investor — which is the prism through which Buffett sees markets — the stock market was necessarily riskier. "
http://www.businessinsider.com/warren-buffett-on-risk-and-volatility-2015-4
Please tell me that your closing paragraph is a joke. That it is a red herring designed to bring a smile not to Buddha's face, but rather to us common folk.
I'm sure not comfortable with complex particle physics, especially those discoveries recently made. My distant memory of a Higgs boson has to do with the Big Bang theory and, parallel lines don't converge in Euclidean geometry except at infinity or other forms of so-called non-Euclidean geometries.
I sure have many physics and investment knowledge shortcomings. The purpose of your physics comments escape me, especially with respect to our volatility discussions. I hope you were kidding. Please tell me that is so. If not, please explain the linkage. I'm puzzled.
Best Wishes.
None! I'm totally unfamiliar with particle entanglement.
You, I, and a host of other folks share our bewilderment. And that even includes Albert Einstein. Although he was a major player in formulating Quantum theory, he too was unhappy with some elements of its direction and interpretation. As this exchange reinforces, the same is true for financial theory and its interpretations.
I forget who said it, but "20/20 hindsight is the world's most exact science".
Best Wishes.
It sounds as though you are familiar with the concept. As you say, Einstein also refused to accept it - calling the idea "spooky." http://www.nytimes.com/2015/10/22/science/quantum-theory-experiment-said-to-prove-spooky-interactions.html?_r=0
'What’s happening isn’t really spooky action at a distance; it’s spooky distance, revealed through an action.'
http://www.newyorker.com/magazine/2015/11/30/spooked-books-adam-gopnik