chapter 13
Measuring risk
If you don’t risk anything you risk even more.
Erica Jong
I have not hidden from you the fact that investing in shares involves risk. Companies go bust and all shareholder value is lost. There are long periods when individual shares do nothing but follow a downward course, hit by bad news announcements or economic crises. There are also lengthy periods, often more than a decade, when markets as a whole go only one way; that is, down.
Investors cannot avoid risk. We have to take that as given. However, there are sensible actions we can take to reduce risk while not sacrificing overall return. Beyond that we have to accept that there is a trade-off between the size of the return and risk. If you are aiming for very ...
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