Perhaps, since the measurement of potential gain and loss…
““Perhaps, since the measurement of potential gain and loss from a particular stock is so subjective, it is easier, if you are a professional or academic, to use a concept like volatility as a substitute or a replacement for risk than to use some other measure. Whatever the reason for everyone else’s general abdication of common sense, your job remains to quantify, by some measure, a stock’s upside and downside. This is such an imprecise and difficult task, though, that a proxy of your own may well be in order.””
About This Quote
Source Book: The Little Book That Still Beats the Market, Joel Greenblatt, 2010
Because risk is hard to measure, analysts often replace it with volatility, though this proxy can be misleading.
In simple terms: Volatility isn’t the same as risk.
Key Takeaway
Don’t rely solely on volatility as a risk gauge.
Themes
risk assessment
financial metrics
investment strategy
Mood
critical
thoughtful
Type
analytical
strategic
When to use this quote
- stock selection
- portfolio construction
- risk management
- academic research
Key Concepts
volatility
risk quantification
proxy measures
Questions to Reflect On
- How can you incorporate fundamental analysis alongside volatility?
- When might volatility be a useful signal?
A Different Perspective
Volatility may reflect price swings but not underlying business fundamentals.