The Third Pig

How To Measure Risk: 3 Ways

Posted by Ben Taylor on February 25, 2008 10:06 AM

Excerpt from Brick Financial's December 2007 Client Letter: 

There are several goals we have in running our [Core] portfolio and if met will demonstrate its risk relative to the market. They are:
          1. limit the frequency of negative return 3 to 5 year periods,
          2. limit the magnitude of the loses in those losing multi-year periods relative to the market,
          3. limit the magnitude of “peak-to-trough” drops in value to 25% or less and fewer than once in any 3 to 5 year period.

…we have had no negative return 3-year periods easily passing the first litmus test of reasonable risk. [Additionally] the Core Portfolio has never lost to the market in any three year period since inception. Finally, in the five-plus years of the Core Portfolio’s existence, we have had one “peak-to-trough” period of greater than 25% lasting a period of four months. Just as the best investment managers have all had periods of year-to-year underperformance, they have had peak-to-trough losses of 25% or greater at least once or twice every decade or so. Once again, we are in good company.

The information contained on Brick Financial Management’s web site is solely for informational purposes and is not intended to be relied upon as a source of investment advice. While every effort has been made to offer the most current and correct information possible, inadvertent errors can occur. Although Brick Financial believes the information and data in this report were obtained from sources considered reliable and correct, we cannot guarantee their accuracy or completeness. No commentary that appears here, or any opinions expressed herein, should be construed as an offer to sell or a solicitation of an offer to acquire any securities or other investments mentioned herein. Persons associated with this firm may own or have an interest in securities or investments mentioned in this presentation. Their positions may change from time to time and they may buy or sell such securities or investments. Past returns are no guarantee of future performance.