The Investment Scientist

Archive for September 2010

Investment Risks

Risk taking is an integral part of investing, yet most investors are blissfully unaware of the risks they are taking, let alone managing them well. In this post, you will quickly learn the good, the bad, and the ugly of investment risks.

Nine Types of Risks

Idiosyncratic risk is defined as risk that is specific to a particular company. This type of risk can be eliminated simply by holding a well-diversified portfolio; therefore, taking this kind of risk is not compensated by the capital market. Examples of taking idiosyncratic risk include investing in individual stocks and buying annuities as investment.

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[Guest post by Tom Warburton] Almost every single day a buddy calls us to discuss the “Investment Pornography” coming from the brokerage houses or from the mouths of the talking heads on CNBC.  Last week was different – almost all of our buddies only wanted to talk about Goldman-Sachs and the Senate Hearings.
The crux of the issue was proffered by Knut A. Rostad, Chairman, Committee for the Fiduciary Standard.  His quote from Wealth Manager “Goldman Sachs, Suitability and the Fiduciary Standard”, April 21, 2010
“The Case Highlights The Wide Gap And Opposing Roles Of A Broker Who Is Permitted In Law To Further His And His Firm’s Interests At The Expense Of Customers, And A Fiduciary Who Is Required In Law To Put His Clients’ Interests First. This Is At The Core Of Why The Fiduciary Standard Is Important.”
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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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