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Technology Stocks : Internet Analysis - Discussion
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To: Steve Robinett who wrote (124)2/8/1999 8:48:00 AM
From: Reginald Middleton  Read Replies (2) of 419
 
The specific risks that an investor takes easily overlap, which is why wo many so called professionals goof up when they try to truly diversify a portfolio. They diversify the assets in lieu of diversifying the risks in the portfolio.

Excluding the last year or two (or three), MSFT has a lower beta and volatility than the S&P 500, although it has trounced it in return over the same period.

Market risk to an investor is not the risk that the security will fluctuate in price. they want the security to fluctuate in price, that is how they make money. The investors primary risk is that they will lose money. That is the risk that the security will go DOWN in price. VaR ,primitive as it is, captures this more realistic view of risk much better than raw volatility numbers.

Raw historical volatility has failed on many occasions to manage risk in the REAL WORLD which is why an entire cottage industry has grown up around more advanced risk management and quantification techniques such as RAROC, VaR, and even to a lesser extent EVA.

Before we go on, I think it is imperative that you see risk as the investor sees it, loss of capital, as compared to fluctuation in that capital which includes reward.
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