![]() ![]() In actuality, a sound risk management plan is not just about reducing risk, but rather about calibrating risk appropriately as a means of minimizing the risk of both slow and fast failure. In the aftermath of the global financial crisis, risk management was often used synonymously with risk reduction.panicked selling near the bottom of a bear market). A third type of failure, failing very fast, occurs when we allow behavioral biases to compound the impact of market volatility (i.e.Taking more risk than is optimal also results in a worse outcome, and often leads to complete disaster.” ![]() ![]() In his book, Red Blooded Risk, Aaron Brown summed up this idea nicely: “Taking less risk than is optimal is not safer it just locks in a worse outcome. “Slow” failure results from taking too little risk, while “fast” failure results from taking too much risk. In the portfolio management context, failure comes in two flavors.For most investors, long-term “failure” means not meeting one’s financial objectives.This post is available as a PDF download here. ![]()
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