Everywhere we turn these days we hear and read that markets are risky and this is borne out by the abnormal volatility taking place in our own and global markets, which is lead by massive economic uncertainty.
Hence investing in this uncertain climate can only be unnerving. Firstly what is risk and secondly how do you manage this risk? This subject has been addressed in the latest Coronation newsletter, which we have summarised below for you below. The full article can be found on our website, www.investonline.co.za
- Risk is a concept, not a number – volatility alone is an incomplete measure of risk
- We have strong views on how it should be defined: we view it as the permanent loss of capital
- For example 2006/2007 global volatility was at an all time low, yet risk was high (banks were lending recklessly, sowing the seeds for the 2008 crash)
- How should one manage risk? It is difficult to define but important to weave it into the investment process. Risk deserves as much attention as return
- It is important to have a long-term horizon and commitment to look through the cycle. The real test comes when the tide is out
- Coronation’s returns in the last few years have been delivered by taking less risk, not more
For more investor advice, or to view the full version of Coronation’s newsletter, Corospondent, please see the section ‘fund manager comments’ on our website,