20/20 Money: See the Markets Clearly and Invest Better Than the Pros

Chapter 9. THE NATURE OF RISK AND NAVIGATING MARKETS IN TROUBLED TIMES

	If you wait to do everything until you're sure it's right, you'll probably never do much of anything.
	--Win Borden

	If fear alters behavior, you're already defeated.
	--Brenda Hammond

Risk is a way of describing an emotion. Search around on Wikipedia for "risk" and you'll find something interesting: There is no universal definition of risk. For each corner of the world that needs to account for risk, there's a different methodology and perspective.

But fear is a human universal. Of all the emotions, fear is one of the most powerful because in the wild, eons ago, we needed that emotional kick in the pants to motivate us to get out of harm's way to survive.

In today's world, this manifests itself in strange ways. The innate mechanism of fear has been overlaid in sometimes perverse ways in our daily dealings as "risk." We mask it by dispassionately calling it volatility or, sometimes, probability. But no calculation can quantify fear. Any amount of "risk" calculated by a spreadsheet ultimately has to be executed in the real world. By you.

Note

But no calculation can quantify fear. Any amount of "risk" calculated by a spreadsheet ultimately has to be executed in the real world. By you.

There, risk suddenly becomes a question of guts. Can you keep your gumption on days of big market slides when your whole retirement is on the line just because your risk model says your strategy is foolproof? If not, no amount of math is ...