The perversity of risk

The perversity of risk (a concept coined by Howard Marks) is a paradox that argues that risk is most felt when it is least present, and is least felt when it is most present.

In other words, investing in an asset that’s run up (in value or in price) is a risky bet, because by the time you know about it, it will have already risen, in which case you can expect it to go down, not up.

In other words, you’re too late.

On the flip side, the best time to invest in an asset you think will do well is when its price or value has gone down.

Which is incredibly hard to do, primarily because you can’t predict it will go up. It’s just a safer bet.

The only other choice, of course, is to invest in moderation. To hedge your bets, by diversifying your portfolio of risk, and then, to not think too much about it.

Moderation takes away the fear of loss.