Risk is a pretty slippery concept. It’s ether a terribly negative thing or a very positive source of new value. We talk about it in many ways from strategic to operational risk, from systematic to non systematic (or use the systemic word), from managerial to organisational. Just when I thought I’d got a handle on it and a steady vocabulary to share with my clients and students someone else defines it from another angle.
In a forthcoming e-book, “Deep Risk: How History Informs Portfolio Design,” William Bernstein (good name to have in this field after the excellent “Against the Gods” by Peter Bernstein) now talks about “shallow risk” and “deep risk”. Shallow is temporary and deep is, well errr… deep and not temporary. Shallow is the normal hustle and bustle of markets but it’s not permanently destroying capital. Deep is a killer. The sources of deep risks: inflation, deflation, confiscation and devastation.
Hmmmm…… can’t see an acronym there! Not seen the book yet but the sources of “deep” risk must be a little more varied than the mechanistic ones he’s identified. What about all the decision making risks? These can be pretty “deep” on such a definition. Markets work as much by psychology as they do by events. Maybe he includes them… must read the book.