Amount Quote by Seth Klarman
“Rather, risk is a perception in each investor's mind that results from analysis of the probability and amount of potential loss from an investment. If an exploratory oil well proves to be a dry hole, it is called risky. If a bond defaults or a stock plunges in price, they are called risky. But if the well is a gusher, the bond matures on schedule, and the stock rallies strongly, can we say they weren't risky when the investment after it is concluded than was known when it was made.”
About This Quote
Source Book: Margin of Safety by Seth Klarman, 1991
Risk is the investor’s perception of potential loss based on analysis, which can change after outcomes are known.
In simple terms: Risk is how investors view possible loss.
Key Takeaway
Assess risk before committing capital.
Themes
investment
perception
analysis
uncertainty
outcome
Mood
cautious
analytical
Type
financial
educational
When to use this quote
- portfolio construction
- due diligence
- risk management
- post‑mortem analysis
Key Concepts
probability
loss
behavioral finance
risk assessment
Questions to Reflect On
- How do you differentiate perceived risk from actual risk?
- What safeguards can limit hindsight bias?
A Different Perspective
Risk perception may be biased by hindsight, overlooking unknown unknowns.
