- Risk is not a number, it is a concept or a notion. Risk equates to what Ben Graham called a "permanent loss of capital".
- Modern finance measures risk on metrics like standard deviation, BETA, VAR etc. which we do not subscribe to.
- We measure risk on 3 parameters
Risk of buying stocks dear without adequate margin of safety . Reasonable valuation is the cornerstone of all our investment decisions.
Risk that current earnings could decline due to technological changes , economic changes or deterioration in management
BALANCE SHEET RISK
Risk of an over-leveraged balance sheet is due to ignorance of weak balance sheet during good times in favour of the cyclically high & un-sustainable earnings.