The Nature of Risk

The Nature of Risk is a seminal work for anyone who understands that self-knowledge is key for success in the financial markets, particularly at market extremes. Rather than babble about risk in general, Mamis takes this engine apart and examines its parts, among which are information risk and price risk. He explains that as one's tolerance for information risk increases (the need to know why the stock is doing whatever it's doing), one's price risk diminishes (one is better able to jump in and take advantage of whatever opportunities for picking up cheaper shares present themselves). On the other hand, if one has no tolerance for information risk and must know everything about a stock's movement, his price risk will be that much greater because the price will likely, by then, have risen to an over-extended level. Therefore, having identified these components of risk (time risk is another), one must then balance them out in order to approach the markets rationally and unemotionally.

An extremely important work, particularly for the investor who is plagued by doubt, confusion, and anxiety.