What About Risk?

I get very irritated when people who are supposed to be investment "experts" talk about return without relating it to risk.

Over the last six months I have been wrong about the direction of the stock market. The bounce from the lows in March has been much bigger than I thought was possible. But then one of my failings is that I fail to realize the human minds potential to delude itself for long periods of time. (I do not exempt my own mind from this judgement.)

But to all of you who are so worried about missing the unprecedented run up we have has since the March low, I tell you this: you are ignoring risk. Return is a meaningless concept if risk is not considered.

Is a bond yielding a 16% annual return a good investment? Is it better than cash? The answer to both of these questions (as my favorite professor from CSOM said) is, IT DEPENDS. In this case it depends on a lot of factors, the most important being risk of default.

So, if you are an investor, not a trader, do not fret about missing this last run-up. It probably isn't sustainable (if you were in and stay in you will likely lose most if not all of your gains). If you are a trader, missing that run-up was a huge bummer. If you didn't miss it, lock in your profits now.

In the following video Rosenberg is right: