COVER STORY Losing it all
The trade-off The problem , however , is that if most investors take this safety-first approach , large areas of the market regarded as too risky become genuinely mispriced , and avoiding them means missing out on the potential for outsized gains if the pessimism turns out to have been unwarranted . If every investment potentially represents a risk , even those regarded as “ safe ”, is it worth considering those instruments regarded as the most dangerous , so long as the return potential compensates you for this risk ?
Charlie Parker , managing director at Albemarle Street Partners , says this way of thinking should come with a health warning attached . “ At a certain point , the amount of risk you are taking limits your ability to invest in a diversified way , and the actual likely return you receive starts to go down when you model it in an evidence-based manner ,” he explains . Edward Allen , investment director at Tyndall , adds that a governing rule for all investors should be to avoid permanent capital loss . Aside from when a company goes bust ,
Performance of index over 20yrs
MSCI Russia ( -100.00 %)
600 % |
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500 % |
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400 % |
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300 % |
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200 % |
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100 % |
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0 % |
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-100 % |
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Apr 02 |
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Source : FE Analytics
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