Defining Risk Characteristics

Risk in Investing

The first order of importance is that of protecting and supporting the client's investment objectives. After this is assured by a conservative selection of securities, it is both theoretically and practically appropriate to take risk where risk-taking pays off best. In this way, relatively high overall rates of returns can be realized while relatively small amounts of assets are deployed at significant risk.

Risk is commonly measured as volatility at business schools and by practitioners of modern portfolio theory. Volatility is an easily captured numerical expression of historical price behavior. The measurement’s usefulness is limited in that it provides little or nothing more.

Rapid gains from a “norm”, as well as rapid downward departures, are both considered to be volatility. If all stocks have behaved exceptionally well (or poorly), one’s asset mix will be classified with a high quotient of volatility, or “risk” by this definition.




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