Marks redefines risk as the likelihood of permanent capital loss rather than mere volatility. He argues that true risk assessment requires subjective judgment and a focus on potential downsides. For example, during the 2008 financial crisis, many underestimated the risks of mortgage-backed securities due to overreliance on historical data. Marks writes, 'Risk means more things can happen than will happen,' highlighting the importance of preparing for unexpected outcomes. | Howard Marks | The Most Important Thing

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Understanding Risk

Marks redefines risk as the likelihood of permanent capital loss rather than mere volatility. He argues that true risk assessment requires subjective judgment and a focus on potential downsides. For example, during the 2008 financial crisis, many underestimated the risks of mortgage-backed securities due to overreliance on historical data. Marks writes, 'Risk means more things can happen than will happen,' highlighting the importance of preparing for unexpected outcomes.

-- Howard Marks