Investment portfolios represent the culmination of several decisions. The quality of these decisions varies, and it is important to align your risk exposure accordingly. Decisions based on highly sophisticated analysis in complex situations can be impressive and, if they should turn out to be profitable, can even confer a belief that an investment manager has significant insight. However, we outline the significant hindrances to producing an accurate prediction in complex situations and contrast this with some examples of simpler decisions. A key element of risk management is calibrating exposure to insights after taking their accuracy into account.
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