Before we go any further, allow me a slight digression to get the definition of “risk” out of the way. The definition I use in this book is not the same as the one defined by corporate finance theorists. Finance theory claims that risk is the chance that the actual investment return will differ from the expected investment return.12 Thus, if an asset is highly volatile, it will be classified as riskier than an asset that is not as volatile. If you think about this for a moment, you will conclude that this is nonsensical. For any investor, risk should simply be the probability of incurring a
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