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  1. #11
    Guru
    Join Date
    Sep 2009
    Posts
    2,685

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    Just came across this so thought I'd post
    https://medium.com/stockswipe-trade-...e-85da21808652

  2. #12
    Member
    Join Date
    Nov 2016
    Location
    Little frog in a big pond
    Posts
    189

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    Interesting read BB. Method of failure, probability of failure, consequences of failure. All for new ideas, but ask yourself these questions, then add on will this get me sacked, and you have group management 101.
    i took a completely different tack to snoopy, I did have shares in gentailers, but then suddenly realised I'm living in a land of earthquakes, what on earth am I doing investing in power companies??? First chch, then Blenheim, slow slip in east half of north island.... (yes, I know we're talking geological time, but still, all that infrastructure).
    These forums contain a lot of positive bias, bring it on BB, I'm interested.

  3. #13
    Member
    Join Date
    Mar 2016
    Posts
    105

    Default

    First time back on these forums for about 18 months - good to check in on the topic of risk.

    Risk management is what I do for a crumb - specifically the financial impacts rather than physical, so I love to delve into this area.

    I would argue that one element of risk is not an element "method of failure" as it is possible in an investment portfolio to diversify exposure to method of failure to the point where how something fails does not matter, it's only the likelihood and degree of which it fails that matters.

    This is mathematically expressed through the volatility of returns (the dispersion of returns from its mean) and the probability that the returns of a portfolio will not exceed a certain negative value so as to cause portfolio ruin or some predetermined tolerance.

    Once those concepts are understood, you then view your investments through a completely different lens - how are assets in my portfolio correlated? (Why do retirement village shares seem to move together?) therefore how much of an asset should I buy to reduce the effect of a downward price movement on my portfolio - should I buy another asset as well that is likely not to move down or even up in that scenario?

    Taken even further, you begin to ask the question - does the asset itself actually matter, or only the statistical properties of the asset matter? if one company goes bust, does my portfolio construction mitigate this possibility and does it have an overall effect on the performance of my portfolio?

    Proper portfolio construction can therefore eliminate the method of failure element - leaving the probability of failure and extent of failure as the remaining elements.

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