![]() The investment management industry does not draw accurate distinctions between different activities, so these definitions are my own. How do you define Active Risk Management?Īctive Investment Risk Management uses tactics and systems to actively make decisions to decrease or increase exposure to the potential for loss. It’s the exposure that is the risk, the chance or possibility is always there. So, risk is the exposure to a chance or possibility of loss. Uncertainty is something we live with every day and in all things, so we may as well embrace it and enjoy not knowing the outcome of things in advance. Some people believe that uncertainty is a risk, but we always have uncertainty. If we incur a loss, that isn’t a risk, that’s an actual loss. I believe when we are speaking of money, risk is the exposure to the possibility of loss. I often call it “active risk management” because many people in the investment industry claim they “manage risk”, but they don’t actively direct and control their exposure to loss (the risk). There is nothing passive about managing risk. ![]() We must first identify the risk: “what is a risk”. To measure risk is to determine “how much” risk it is. To measure is to quantify a dimension or capacity or amount as ascertained by comparison with a standard. The problem with that definition is it doesn’t draw a clear distinction between risk “measurement” and risk “management”. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance.” ” the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. ![]() Risk management is defined by Investopedia as: There are many ways to actively manage risk, including setting predetermined exits (stop loss), using derivates with a limited downside, or hedging. “You cannot manage outcomes, you can only manage risks.” – Peter Bernstein Active Risk Management is the process of actively attempting to direct and control the possibility of loss in an investment portfolio.
0 Comments
Leave a Reply. |