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We need to talk about risk

There have been signs of fear creeping back into markets.
We need to talk about risk
  • Risk for individual shares can be broken down to four main characteristics
  • UK companies this week: RELX, Moneysupermarket.com, British American Tobacco and Mitchells & Butlers
  • US companies this week: Pepsico and Walt Disney

Financial theory tells us that to make more money we have to take more risk. But, some of the best long-term investors have succeeded by taking less risk. Some by buying very good and resilient growth businesses at reasonable prices and some place more emphasis on controlling risk through the price they pay for shares.

My Twitter feed is regularly populated with posts from private investors telling their followers about how much money they have made. There’s nothing wrong with this but I never see anyone ask them one very important question: "How much risk did you take to make that money?"

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