The birds and the bees, why a zoologist is talking about financial risk Click here to read the full transcript Professor Lord John Krebs Kt FRS, renowned zoologist and chairman of the board at Oxford Risk, delivered a lecture to the FCA as part of their ‘FCA Insight Lecture’ series at 1830 on November 22nd 2017, […]
Risk appetite questionnaires need not be (indeed, should not be) “elaborate”. Over-engineered and superficially sophisticated ‘revealed preference’ approaches result in exactly the same problem for investors as Kids do for investments: highly unstable reflections of current short-term preferences, not long-term needs.Risk tolerance cannot be accurately assessed by putting complex risk-return choices in front of people, or asking them to choose between possible portfolio outcomes in the distant future. As humans, we simply don’t know how to judge the level of risk we’re prepared to take over the long term.If organisations are to ensure they are providing the right level of risk for their clients, they need to stop pretending that it is possible to arrive at accurate measures of risk for individual investments ‘bottom-up’. The more granularly we try to measure risk, the less credible the measures become.
Financial returns aren’t the only thing investors value.Financial returns aren’t just a means, they can be an end.Investors need to feel comfortable with their portfolio if they are to succeed.