Tag - market risk

Advice to the Advisors

Warren Buffett Lesson on Risk and Volatility | Sheaff Brock Institutional Group

The Lesson Many of Your Clients Were Never Taught

“That lesson has not customarily been taught in business schools,” Warren Buffett observes, referring to the concept that “Volatility is far from synonymous with risk.” In a 2015 letter to shareholders, the Berkshire Hathaway CEO wrote about the difference between risk and volatility. Many investors, he observes, “conflate these concepts, costing themselves money.” Of course, the fact that stock prices will always be far more volatile than cash-equivalents must play a part in any advisor-client discussions of portfolio design. But, [...]

Advice to the Advisors

Sheaff Brock Institutional | Market Movement | Risk and Volatility

Today’s Advisors and Investors Do Not Equate Risk and Volatility

By the 1990s, forty years after Harry Markowitz had introduced his Modern Portfolio Theory, the concept of risk avoidance had gained enormous influence in the world of portfolio management. Computer programs had come into being plotting different investment mixes into an “efficient frontier,” causing many financial professionals to equate risk and volatility. Michael Keppler, then First VP of Commerzbank Capital Markets in New York, viewed this development with concern, questioning Modern Portfolio Theory’s use of volatility as a proxy for [...]