# Risk on the stock market [1]

2017-06-16 · https://gabrielkoerich.com/posts/risk-on-the-stock-market-1/ · tags: finance, investing, stock-market, medium

> What risk means for a long term stock investor. Following Benjamin Graham, a price swing is not a loss, and the real risk is paying too much for a company.

<img src="https://gabrielkoerich.com/images/posts/risk-on-the-stock-market-1.jpeg" alt="Stock ticker board with prices and percentage changes">

Whenever I told someone that I invest in the stock market (I stopped telling people, for the reason below), I heard impressed comments and warnings that shares are very risky. That is the first thought people have about their own money. No one wants to risk losing what is theirs, but everyone wants to spend on the latest fashion, right?

Risk in the stock market deserves a longer discussion. Stocks are a very long-term investment, a place for money you will not need for a long time. People usually call risk a possible fall or swing in a share's price, even when the fall is cyclical or temporary, and even when the investor has not sold.

That makes the definition of risk for shares confusing, because the same shares can look safe or unsafe in different periods, or even in the same one. This is roughly the point I want to make. Historically, stocks have had the highest long-term return (at least in the US), but if price volatility over that long term counts as risk, then the same stocks are both safe and unsafe.

This passage from "The Intelligent Investor" by Benjamin Graham, in my own free translation, shows the idea well:

> "If a portfolio of shares of qualified companies shows a satisfactory return over the years, common sense says those shares have proven to be 'safe'. Their market value certainly fluctuated during that period, but they were simply not sold below the price the investor paid."

The book suggests we avoid the confusion completely by using the word risk only for a real loss: selling the shares at a loss, a management problem, steadily falling profits, poor prospects, stalled growth or, most often, paying too high a price for the company.

After a major crisis like the one in 2008, most investors see the market as very risky. They forget that the fall in prices has made stocks much safer than before. People leave the market when they should be buying, and they forget that over the long term stocks tend to return more than any other investment.

I hope to write more about risk in the next posts, and so keep justifying why I hold between 80% and 90% in stocks!

Originally published on 10/06/2010 on [my old anonymous blog](https://rendapassiva.wordpress.com/2010/10/06/risco-na-bolsa-de%C2%A0valores/), with some corrections and adaptations.

PS: Today I have 40% of my portfolio in stocks. I admit I was much more optimistic about Brazil back then. A second part is coming, going deeper into risk, return and the efficient frontier, and into where Markowitz was wrong.

*Originally published on [Medium](https://gabrielkoerich.medium.com/risco-na-bolsa-de-valores-1-e1e7a355ca79)*