Conquering the Seven Faces of Risk

Risk is not a one-dimensional problem cured by a single dose of diversification. It's a multidimensional problem, and diversification’s passive risk reduction is only just the start. At least since Markowitz developed Modern Portfolio Theory 65 years ago, risk has generally been measured as the standard deviation from average return. However, Behavioral Economics (and even the dictionary) say risk is really about the loss of value. Risk has at least seven unique faces, including (1) Single-Stock Risk, (2) Market Volatility, (3) Bear Market Crash, (4) Momentum Loss, (5) Backtesting Deception, (6) Strategy Hired/Fired Late, and (7) Retirement Savings Will Not Be Enough. The elephant in the room for most people facing retirement is a serious retirement savings shortfall – making their most serious risk about insufficient returns. Fortunately, a Royal Society Fellow, a National Medal of Science winner, and a trio of Nobel Laureates have laid the foundation for active risk reduction and better returns that have forever changed the game. This book intends to shake the very foundation of the sleepy momentum monoculture that seems happily mired in decades-old, simplistic, risk models that not only fail to treat momentum as the multi-faceted problem it is, but also fail to consider fundamental signal processing methods (older than Modern Portfolio Theory) that reduce the “random walk” part of the signal and improve the probability of making a better investment choice. The book’s principles and methods are described in a manner most ordinary investors will easily grasp, and while it is complicated under the hood (like your car), software tools make it easy to drive.  So, buckle up, turn the page, and let’s go for a ride!