How To Define Risk And How To Manage Human Bias – ValueWalk Premium

How To Define Risk And How To Manage Human Bias

This is a multi part post on ValueWalk's interview with David Marcus, co-founder, CEO, and CIO of Evermore Global Advisors. In this part, Marcus discusses how he manages risk and human bias.

Q1 hedge fund letters, conference, scoops etc

Very cool, yeah, and if you just go over your … how you define risk and how you manage it?

Well, look, in terms of risk, I think about permanent loss of capital, what will cause that? How much risk are we taking to make the returns that we have, that we are trying to achieve? How do we manage the risk that we’re taking? Well, we’re trying to buy stocks that we think are substantially discounted at the valuations when we start. We’re trying to build in, you know, people like to whip around the words, you know, margin of safety so I’ll join the club. But we want a substantial margin of safety, we want a real … not just a cushion but a series of cushions. And as I said before, this whole concept of having all these catalysts or assets that are maybe for sale, non-core and so forth, to help cushion the opportunity or the path to getting the opportunity to work, and really just focusing on what can go wrong. If you look at our writeups, when we write things up internally over the last few years, the risk section for each and every investment has gotten bigger and bigger and bigger, not because we’re taking bigger risks, but because we’re focusing more and more on realizing that there’s layers of risk that maybe we didn’t think about in the past. Do we have a company that’s selling directly to China? Sure. Do we have a company that’s selling to … a French company sells to a German company that’s selling to China, whether are indirect risk exposures and so forth.


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