Mark Spitznagel
Essay by author via Financial Times
The fact is, safety from risk can be exceedingly costly. As a cure, it is often worse than the disease. And what’s worse, the costs are often hidden; they are errors of omission (the great shots that could have been), even as they mitigate errors of commission (the bad shots). The latter are the errors we easily notice; ignoring the former for the latter is a costly fallacy… More surprising, even investors engage in risk mitigation irony as well. They strive to do something — anything — to mitigate risk, even if it impairs their portfolios and defeats the purpose. The vast majority of presumed risk mitigation strategies leave errors of omission in their wake (ie underperformance), all in the name of avoiding losses from falling markets.