Philosophers have long argued that courage is the most essential human virtue, because without courage, all other virtues lie in jeopardy. Remarkably, the theorizing of ethicists has an implication for practical portfolio management.
We can illustrate this with a simple example in Exhibit 1. It’s Dec. 31, 1999, and a professional investor is considering buying four different stocks for his clients’ portfolios. He obtains (never mind how; read the paper) correct data on the future volatility of the four candidates. All four possible purchases are more volatile than the market as a whole, but stocks A and B appear especially so.
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