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Risk exists because of one simple fact: Decisions are always based on
incomplete information. Therefore, to meet your investment goals over the long term, you
must learn to manage the risks associated with a decision-making process that is by
nature flawed. Risk and the Smart Investor provides a framework for making such decisions.
Avoiding unrealistic promises of completely risk-free investing, world-renowned
risk management expert David X Martin familiarizes you with the principles of risk
management. Based on Martin’s experience in managing risk at several of the world’s
largest financial institutions, this principlebased approach presents a unique perspective
that helps you manage the risk in every investment you make.
Risk and the Smart Investor provides not only a framework for managing
risk in today’s markets, it also prepares you to handle the next financial
crisis—which is coming, sooner or later—by separating risk management into four
separate processes:
- Assessment—know where you are, but accept the fact that you cannot know
everything
- The Rules of the Game—determine your appetite for risk, diversify
accordingly, demand transparency, and institute checks and balances
- Decision Making—consider all alternatives, fit your plans into specific
time frames, and always have an exit strategy
- Reevaluation—continually monitor the outcomes of your decisions and learn
from your mistakes
Table of Contents
Introduction
Part 1 Assessment
Risk Principle 1 Know Where You Are 3
Risk Principle 2 Know What You Don't Know 19
Part 2 The Rules Of The Game
Risk Principle 3 Determine Your Appetite for Risk 41
Risk Principle 4 Demand Transparency 57
Risk Principle 5 Diversify 75
Risk Principle 6 Checks and Balances 95
Risk Principle 7 Hard Work 115
Part 3 Decision Making
Risk Principle 8 Consider All the Alternatives 135
Risk Principle 9 Risk Is Everyone's Responsibility in the Decision-Making
Process 157
Risk Principle 10 The Importance of Reputation 175
Risk Principle 11 Fit Your Decision Making into Specific Time Frames
189
Part 4 Reevaluation
Risk Principle 12 Monitor Outcomes Continuously 209
Risk Principle 13 Identify and Learn from Your Mistakes 223
Conclusion
Risk Principle 14 Enduring Principles and Perpetual Process 241
Index 253
298 pages, Hardcover