Tip of the Day
Volatility does not measure risk. Past volatility is not a measure of risk. It's nice math, but it's wrong. If a farm in Nebraska used to sell for $2,000 per acre, and now it sells for $600 per acre, investment theory would say that the beta of farms has gone up, and that they are more risky than before. If you tell that to people, they'll say that that's crazy. But farms don't trade daily the way stocks do. Since stock prices jiggle around, finance professors have translated that into these investment theories. It can be risky to be in some businesses. Risk is not knowing what you're doing. If you know who you're dealing with, and know the price you should pay, then you're not dealing with a lot of risk.
Tags: risk, volatility
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