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Episode notes
Risk Versus Loss Distinction
- Risk is the possibility of a bad outcome while loss is the realization of that outcome.
- Assets can be risky for long periods until an external shock exposes vulnerability.
Lean Against The Cycle
- Assess vulnerability by where you stand in the cycle and reduce exposures when markets are elevated.
- It's wiser to act early with measured caution than to be late and suffer bigger losses.
Psychology Amplifies Market Moves
- Psychology dominates short-term market movements far more than fundamentals.
- Small economic swings produce large equity swings because investor sentiment amplifies them.