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Risk vs Volatility

By June 1, 2018August 23rd, 2021No Comments

Risk vs Volatility

Rob: Welcome to Straight Talk, I’m Rob Tetrault from the Tetrault Wealth Advisory Group. Today, we’re looking at Risk vs Volatility. What the heck do they mean and how are they different?

Risk and Volatility. Let’s start with risk, risk is the likelihood of your investment in a specific company going to zero or effectively you losing most or all of your money. Think of a mining company that’s in Northern Alberta, they’re down to their last few hundred thousand dollars or their last million and they’re drilling into the ground, they need to strike gold. If they don’t strike gold, that company is going belly-up. If they strike gold, great! Maybe they’ll go from eight cents to 12 cents or 24 cents but if they don’t they’re going bankrupt. We believe that’s a significant risk, that’s something we want to stay away from, you might as well go to the roulette table if you’re gonna do that. We believe that volatility is a natural occurrence based on world events and consumer behavior that not only is good for the markets, long term, but also presents a great opportunity.

Think of Brexit in 2016, overnight the Brits voted to exit the European Union. Volatility took over in the market, people started selling equities, stocks. In the morning the news hit and then more people sold. Next thing you know we got a thousand point negative day. Reality sets in, people realize these are the same companies with the same profits, same management. Nothing is fundamentally changed about these companies, so what happened? The prices came back, naturally, fairly quickly in fact and the people who sold made a decision based on emotion obviously lost out. We actually believe that volatility can be a very good thing for portfolio managers, such as myself, to take advantage of market inefficiencies and re-balance of a portfolio.

Take a look at what I said in February 2016 when the market had fallen almost 25 percent in North America.

Risk and Volatility

BNN Host: What is interesting to you right now in this crazy market environment Rob?

Rob: Well I’m really interested in oil, I really like financials. Somewhere near here in my mind there will be a bottom in the next… whatever it is, three, six, nine months. I do know that long term, I’ll be happy that I bought financials around this time.

Rob: Alright, here’s the straight talk on risk versus volatility. At the Tetrault Wealth Advisory Group we believe that, one, risk is a four letter word and it’s not one that we like. Two, risk does not mean the same thing as volatility and three volatility can present opportunity. Thanks for watching.

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