How to mitigate permanent loss of capital

All investors worry about risks. If you are a long-term fundamental investor, I am sure that if you have been told not view short-term volatility as risk. Rather you should view risk as a permanent loss of capital

The problem with permanent loss of capital is that there is very little literature on what to do about managing risk.

In the case of volatility, there are tons of literature about how to manage them.

• We have Modern Portfolio Theory that separates risk into systemic and non-systemic ones. You reduce the non-systemic risks via diversification. You cannot get rid of systemic risk.
• There is the Capital Asset Pricing Model where you have Beta as a measure of risk. You seek higher returns for taking on higher risk.

But when it comes to permanent loss of capital, there is very little advise of what to do. I faced this problem when I started to invest.

I eventually tapped into my corporate risk management experience to set up my permanent loss of capital mitigation framework. This involves the following:

• Identify the causes that can lead to the risk.
• Assess the risk in the context of the impact and the likelihood of the occurrence.
• Formulate the mitigation measure to manage the risk.

The strategies to manage them cover:

• Avoid - what can be done to prevent it from happening.
• Reduce - how to minimize the impact of any risks.
• Transfer - is there a way to transfer the risk and/or the consequences to another party.
• Accept - in some instances where the cost of mitigation outweighs the benefit of the mitigation strategies, it may be better to live with the risk.

If you want to know more, refer to” How to mitigate permanent loss of capital in an awesome way”
https://www.i4value.asia/2023/10/how-to-mitigat...