Howard Marks: How To Think About Risk

“Assembling a portfolio that incorporates risk control along with the potential for gains” is what we are trying to do.

0:24 - What is risk?

2:38 - Is risk quantifiable?

5:21 - What are other forms of risk?

6:57 - Where does risk come from?

9:30 - What does it mean to think probabilistically?

20:32 - What is the relationship between risk and asset quality? *** (very important facts and information)

23:16 - What is the relationship between risk and return? (25:22, very unique and outside the box way of thinking or viewing the return risk graph)

25:53 - How should risk be managed?

34:18 - What is the bottom line?

Don’t expect to make money without taking on risk, don’t expect to make money for simply taking on risk. Risk is best handled on the basis of accurate, subjective judgements made by experienced expert investors who emphasize risk consciousness. The great challenge in investing is to limit uncertainty and still maintain substantial potential for gains.

Outstanding investors are outstanding for the simple reason that they have superior sense for the probability distribution that governs future events. And whether the potential return compensates for the risks that lurk in the distribution of the unattractive left hand tail of the distribution curve.