Section Six

Summing Up Risk and Return

SUMMING UP RISK AND RETURN

In the preceding sections we have learned a great deal about financial investments and their markets. No guide to the markets would be complete, however, unless it addresses how to evaluate investment results. Though this is a large and complex topic, it boils down to an understanding of how investment results (referred to as investment returns or performance ) are measured and reported, both in absolute terms and after adjusting for risk.

Chapter Nineteen provides an introduction to the ways that performance is calculated and to the standards used by investment managers for presentation of performance results to clients and prospects. Chapter Twenty introduces the concept of investment risk and explains some of the ways it can be measured, or at least estimated. It concludes with some guidelines for applying an understanding of risk to the investment process. Finally, in Chapter Twenty-one, we take a step back to the larger context of the financial markets, offering some final thoughts.