Think of it this way: • Why should... - Deepstash

Think of it this way:

• Why should a bargain exist despite the presence of thousands of investors who stand ready and willing to bid up the price of anything that’s too cheap?

• If the return appears so generous in proportion to the risk, might you be overlooking some hidden risk?

• Why would the seller of the asset be willing to part with it at a price from which it will give you an excessive return?

• Do you really know more about the asset than the seller does?

• If it’s such a great proposition, why hasn’t someone else snapped it up?

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  • When everyone believes something is risky,their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing, since all optimism has been driven out of its price
  • And, of course, as demonstrated by ...

Modern Finance: Corporate Risk Management

Corporations managing risk themselves face a fundamental question: why do they need to do it? Individuals and investment groups can manage the risk on their own. Making good investments seems like a better option.

Hedging bets are mostly fictional transactions that don’t affect the value o...

Sharpe ratio

Given the difficulty of quantifying the probability of loss, investors who want some objective measure of risk- adjusted return— and they are many— can only look to the so- called Sharpe ratio. This is the ratio of a portfolio’s excess return (its return above the “riskless rate,” or the rate on ...

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