The Missing Risk Premium

What Hacker News says

1. gfodorAug 2020
   Jackass Investing and Millionaire Fastlane are good layman books. Expected Returns is a more advanced but accessible one. Also the Missing Risk Premium is good food for thought since if its thesis is correct nearly everything you read about risk management in typical indexing investing literature is bogus and the opposite of true.

   Tl;dr is two much more sane approaches to investing are return driver focused or income generation focused capital allocation instead of asset appreciation and compounding based upon speculative indexing. These btw are what rich people do with their money (hedge funds, managed futures, income generating investments) not park it in index funds and hope the underlyings appreciate due to asset prices going up. Rich people pay 2/20 management fees because the fees pay for true diversification. Diversification is real but requires diversifying return drivers not asset classes. (Asset price changes are just one return driver.) If you are just sitting in asset backed index funds there are a variety of tail events (non-apocalyptic ones) where their action correlation goes to one and you’re perma-in the red until you die.

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2. mattnewportMay 2019
   The book The Missing Risk Premium covers a lot of the evidence. The author give a synopsis here: https://falkenblog.blogspot.com/2013/07/missing-risk-premium...

   Low volatility investing is based around the observation that low volatility stocks have higher average returns than high volatility stocks. This article is a good summary: https://www.researchaffiliates.com/en_us/publications/articl...

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3. gfodorDec 2017
   if you are optimizing for regret minimization I'd probably argue that it's way less regrettable to end up in $200-300k in debt due to a crazy, unexpected snafu occurring (like an economic crash or company crash) than have to know for the rest of your life you could have been a millionaire if you just had bet on the (at the time) reasonably high probability event of eventual liquidity, by exercising options that you worked hard to earn. especially because in the crash scenario, you are surrounded by commiserating peers who also got burned, but in the upside scenario you missed out on, all of your peers except you are living the high life shaking their heads at your "foolish" (in hindsight) risk aversion.

   edit: not sure why the downvotes. if you are interested in a treatment of peer-based utility functions that affect risk premia, see https://www.amazon.com/Missing-Risk-Premium-Volatility-Inves... -- in other words, risk may not be best measured as volatility but instead as the expected relative wealth gain/loss to your market peers. for private employee equity, those peers are other optionholders.

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