19 Jul July 2011: On Risk and Volatility

Posted at 20:19h in 2011 Commentaries by

ON RISK AND VOLATILITY

With the recent volatility in the global equity markets, the subject of “risk” has re-emerged as a leading conversation topic among the media talking heads. Mr. Market1 , a metaphoric figure used to represent the collective opinions of global investors, is a fickle fellow. His mood changes on a whim: euphoric on some days and depressed on others. His optimism is contagious when all is well in the world but his pessimism takes hold at the slightest hint of distress. In a word, Mr. Market is manic and because his memory is short-term, he tends to make snap judgments. Risk-on, risk-off. Buy then sell. Play the game, sit on the sidelines. Such is the recipe for the current volatile environment. Mr. Market senses risk, but he can’t make his mind up on how to carry on.



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