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Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term by Wayne Ferbert, Jay Pestrichelli

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11. Know Your Risk Metrics

Judge Smails: “Ty, what did you shoot today?”

Ty Webb: “Oh, Judge, I don’t keep score.”

Judge Smails: “Then how do you measure yourself with other golfers?”

Ty Webb: “By height.”

—Ty Webb (played by Chevy Chase) in conversation with the snooty Judge Smails (Ted Knight) in the hilarious movie Caddyshack (1980)

There is a popular management axiom that says you can’t manage what you can’t measure. Our second Iron Rule pays homage to that axiom.

Iron Rule #2 is know your risk metrics.

Recalling the first chapter, you should remember that the retail investor has a singular focus on his investment returns. Typically, this same investor lacks the appropriate appreciation for his portfolio’s risk. Ultimately, the investor can ...

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