Morningstar Advisor - April/May 2013 - (Page 50)

Morningstar Conversation Risk’s Wake-Up Call By Hal Ratner Investors can take precautions, but at some point, they need to realize that no one can predict the future. Risks always have been part of the investing equation, but the shock of the 2008 financial crisis was a wake-up call for many investors who assumed that modern financial markets had been built to prevent such deep drop-offs. In fact, what are rarer in the history of markets are long periods of calm. As investors have come to grips with this reality, they are seeking ways to moderate the effects of the meltdowns of the future. But are investors thinking about risk in the right ways? Is it even possible, or advisable, to try to build a portfolio that can withstand 50 Morningstar Advisor April/May 2013 whatever bad event will next hit the markets? To discuss these issues and others, we invited two professional investors who think about risk every day to discuss their views. Joseph Davis, who has a Ph.D. in economics, is the head of the Vanguard Investment Strategy Group. Dennis Stattman, CFA, managing director and portfolio manager, is the leader of BlackRock’s Global Allocation team. Our conversation took place Feb. 26 and has been edited for clarity and length. Hal Ratner: I’d like to start off our conversation by getting from both of you a definition of risk and how it should be viewed in an investment framework. Dennis Stattman: The most important things that I can say about risk are that it’s key to look at it from a number of different perspectives, to look at a lot of measures, and then also to look at risk qualitatively. In the Global Allocation fund MDLOX and on the Global Allocation team, we never lose sight of the idea of risk as being the chance of

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Contents
Contributors
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

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