The Investment Scientist

Recently, Markus Brunnermeier,  the president of the American Finance Association, gave a presidential address titled “Macrofinance and Resilience”.  In this address, he introduced the concept of resilience, which he distinguished from risk. He admonished finance researchers and practitioners to change their focus from risk management to resilience management. 

He defined resilience as systematic positive reactions to negative economic shocks. He used the following chart to illustrate the effect of resilience vs. risk avoidance.

Put into layman’s terms, if you are financially resilient, you can potentially take on more risk and earn higher rewards. 

The concept of resilience can be applied to many areas, from personal finance to investing. Today let’s focus on investing and ask ourselves what it takes to be a resilient investor. Financial resilience has a much broader scope and will be covered in my next article.  

I’d like to suggest a four-point approach to being a resilient investor: