Volatility is a good proxy for risk only if you are a short-term investor

Against the Gods by Peter Bernstein is subtitled "The Remarkable Story of Risk" though this is somewhat clipped. Obviously, risk as danger is not something that has a story. The book is about the attitudes and techniques people take in facing risk.

We have always faced danger. But we couldn't always buy insurance.

When it comes to stock market investing, Bernstein does finally discuss the nature of risk, when writing about Harry Markowitz's famous paper Portfolio Selection.

Because Markowitz uses volatility as a "proxy" for risk, Bernstein writes. The vast majority of financial writing do not even realize that volatility is not risk per se.

So he does discuss whether or not volatility is a good proxy for risk, or whether there's a better way to deal with it. If you don't look upon volatility as itself dangerous to your money, then stock market investing is less risky than putting your money into
a certificate of deposite that is risky because of its low yield.



volatility does not equal risk
volatility does not equal risk