One should present at least the risk factors such as liquidity, probability of default, maturity if applicable, degree of diversification, volatility of return, degree of correlation with the market. No doubt, the training of the investors in understanding and interpreting the concepts of risk lies in the hands of the investment professionals.
In the institutional investors’ relations further risk details would be helpful: Sharpe & Sortino coefficients, Jensen’s alpha, etc. One foundation, should all the market participants base their investment acumen on: the clear-cut concept of the positive link between risk and return. The benefits of this fundamental concept and the risk aversion of the investors should become the basis for a bit more rational investors’ behavior.
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1 comment:
Coming from Romania, this message totaly agrees with your views. Unfortunately, and I am including Romania also, the way people and managers think is affected by the need of an immediate gain, be it financial or not.
In assessing the right ballance between risk and return, investors shoudl take into account a bigger timeframe. If we are to reduce it to short term investments, we'll find all the excuses for the way people invest. But as you observed, the business environment dynamics will force investors to assess the returns after a longer investitional period.
And this is where institutuions and civil society should gain more power. Unfortunately we are reinventing the wheel, when we should just adapt the success investment stories applied in the western societies.
Keep on going!
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