Valuation risk, business risk and balance sheet risk
We are old fashioned when it comes to our definition of risk. We concur with the dictionary’s basic term…“the possibility of loss or injury”…but we augment it with an important addendum to make it two-pronged. To us, real investment risk is the risk of permanent loss of capital and the risk of an inadequate return. We believe investors who are seeking to grow their wealth over time should embrace both important nuances in order to stack the odds in their favour.
David Barr and Felix Narhi record a two part series on risk. In Episode 5, they discuss the trinity of risk, their approach to evaluating each type of risk and the role of behavioral psychology and staying within your circle of competence. In Episode 6 they move from talking about risk assessment at the company level to risk management at the portfolio level.