Risk Capacity?
I came across a “risk capacity” survey online. One of the questions with answer choices:
How would you rate your knowledge about investing in general and more specifically, the relationship between risk, return, and time?
A. significantly below average
B. below average
C. average
D. above average
E. expert
How does it help to pose this question to investors? The firm that poses the above question also makes these assertions on their website:
1. It is virtually impossible to beat a market over time through active investing.
2. Indexing is backed by Nobel laureates who have provided unbiased, rigorous, empirical research, most notably the Modern Portfolio Theory.
3. Stock pickers are analogous to gamblers who rely on feelings and emotions when making bets.
4. Time pickers or market timers move money in and out of different investments in an attempt to profit from short-term cyclical events, which is a futile endeavor.
5. Manager picking is not a reliable practice because the past performance of money managers does not predict their future performance. Star money managers fall from their stature sooner or later, since their stellar performance is attributed to Lady Luck rather than skill.
Whomever wrote the above 5 points has not read Market Wizards, Fortune’s Formula or Trend Following.
