Perceived Risk vs. Real Risk: A Key to Successful Value Investing

Value investing is about purchasing investment assets at prices that put the odds of above average returns heavily in your favor. Excepting an investment that is going to go bust, almost any investment can be profitable if purchased at a low enough price.

The key to successful value investing is buying assets when the perceived risk is greater than the real risk. It’s equally important to avoid assets when the perceived risk is less that the real risk.

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Types of Investment Risk

Understanding the types of investment risk allows an investor to manage risk and optimize outcomes. Let’s look at the different types of investment risk and how a portfolio manager can use the tools available to improve their probability of positive outcomes instead of negative outcomes.

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