Michael Mauboussin Ruminations on Risk

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Michael Mauboussin Ruminations on Risk Beta Versus Margin of Safety 3 August 2001

The concept of risk plays a central role in the investment process. Yet risk is an elusive concept ¾ difficult to define, quantify and integrate.

In this report, we consider two senses of the term risk. The first is what is mainstream in finance circles: you can measure risk by seeing how much a stock bounces around versus “the market.” You can quantify this measure of risk through variance. The higher the variance¾the larger the swings in relative price ¾ the riskier the stock. The second sense is . . .

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