Peter L. Bernstein, who passed away this past June 5th, recently spoke about the concept of risk as it relates to investment management. The main idea of his discussion is that we cannot tell or forsee what is going to happen in the future. Therefore, investors should not spend time calculating what risks are, but rather getting prepared to confront those risks succesfully.  Though we believe that risks can be mitigated by careful analysis, we agree with his general sentiment, best expressed in a seminar he conducted in 1997:

“Today’s obsession with risk management focuses too intently on the instruments of the management and measurement of risk. The more we stare at the jumble of equations and models the more we lose sight of the mystery of life. All too often, reason cannot answer. Even the most brilliant of mathematical geniuses will never be able to tell us what the future holds. In the end, what matters is the quality of our decisions in the face of uncertainty”

His short talk on risk management in the world of investments can be found here.