Ritholtz & Bob Shiller ─ Risk and Finance

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Per this conversation in Bloomberg:

My notes:

  • Past century return of having a house: no [real] change return.  Effectively with maintenance and repairs, unless you like the house, the return is negative.  It’s a money losing position.  It’s a form of forced savings.
  • Good times for booms.  Bonds are up, SP is up, housing prices are up.
  • Financial Markets Course, 2 weeks ago, sign up any time for free. “Coursera”: company involving a number of universities (40k signed up).   Last time 8k w/ certificate and failed 350.  Shorter than lectures at Yale.
  • How jobs are going to look like 50 years fwd?
  • people living longer and earning less (because fat ↓).
  • Plan? Risk management
  • Finance & Insurance is all about facing uncertainty
  • It’s not about beating the market, it’s about managing risks
  • Finance is an important technology: spread a venture with low probability of success among an array of multiple investors.
  • It’s a matter of intelligent risk management, is not a subject of wealth, that emerging markets develop.
  • It’s not the emerging world who’s threatened for cosmopolitan globalization.  It’s rather the ones that live in the 1st world and don’t have a sense of the world, of what’s really going in the rest of the planet.
  • P/E ratio used as valuation as well as we used to use salary for determining a loan paying capacity for individual clients.

Robert Shiller says that generations from now on will have to live managing risks smartly.
Risk Mngt is not about being smart.

In my own view: risk management is taking the instinct of survival and juxtapose it with the capability of choosing within uncertainty. For example look at this approach from Ritholtz: the human brain is not a risk estimator muscle.