01 Aug 2014

Is Financial Risk Aversion Rational?

Humor 3 Comments

As the markets whipsaw about, displacing portfolios, government and industry officials say some fund managers have made a macabre calculation: to split up their investments among various teams, with each group seeking refuge in different asset classes. If one part of the fund loses money, others will earn profits and keep the portfolio alive.

But most funds, officials say, still invest in highly correlated assets as a source of strength and comfort. Some are now merging with other funds, further increasing their size, while others have taken shelter in tax-free municipal bonds and other refuges.

From Albus Dumbledore, there is more here. Note that if there is a “single (cost-adjusted) safest perceived investment,” splitting up the fund into two or more assets is increasing the net expected loss to some investments, without making any other investments safer.

[P.S. I’m guessing you will consider my post here to be rather silly. Now read this.]

3 Responses to “Is Financial Risk Aversion Rational?”

  1. bob rooney says:


  2. Tel says:

    On the bright side, there are now a lot more jobs going in all those middle layers of management, administration, responsibility obfuscation and arse covering.

    That’s got to be good for the economy… I mean, unless an economy requires production of useful goods or something.

  3. John P says:

    Bob have you ever performed ‘Never Gonna Give You Up’? If not could you please correct this as soon as possible (dance moves optional) and post it?

Leave a Reply