How To Measure Risk: 3 Ways
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.
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