● The Affluent Investor: Financial Advice to Grow and Protect Your Wealth
By Phil DeMuth
Excerpt
People are always bragging about their portfolio returns, but they never mention the risks they took because they don’t know what the risks are. Returns are visible; risks are the icebergs you don’t see until you’re Leonardo DiCaprio holding on to the plank….
Imagine that the risk/return visibility was reversed: that it was possible to find out every minute precisely how risky your investments were just by turning on CNBC, but you only learned their returns once a year. This would immediately promote a lot of sensible and productive investing behavior. People would manage their risks diligently and then settle for the returns they could get. This is exactly correct. Unfortunately, the world works otherwise. We watch performance—the bouncing ball in front of our eyes—because of an availability bias. The sadder-but-wiser investor always keeps an eye on risk, especially when he cannot see it.
