Pick your risk factor: value or momentum?

The Capital Spectator has a gem of a piece out:

The term “investing” is a misnomer when it comes to managing money. It’s really a job of choosing a set of risk factors that will produce an expected result. The real challenge is deciding which risk exposures are appropriate and how to manage those risks. But you can’t engineer risk away to nothing in a portfolio, at least not without incurring unbearable expenses. In the end, you can only earn a risk premium as the result of bearing risk and managing it in a way that suits your specific risk tolerance and return requirements.

We had written about this almost a year ago, saying that there is no such thing as “risk free.” Capital and risk are joined at the hip:

The conversations I have been having recently typically ends with “I don’t want to take any risk right now, let me wait and watch.” And therein lies the rub – there is no such thing as “risk-free.” Not in life, not in investing. The total risk in this world is a constant – we only transform it by our action or in-action.

This is where our investment themes come into the picture. By investing across different strategies, you get the benefit of balancing out strategy-specific risks. Worried about choosing between momentum and value? Why not choose both? Keep reinvesting your returns and the winning strategy will automatically become a larger part of your portfolio by the magic of compounding. You can begin by checking out how different strategies have performed here.

Source: The Illusion Of “Investing”


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