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Thinking About Risk: Part II

Twenty-five years ago, as TIFF was establishing itself under the leadership of David Salem, its first President and Chief Investment Officer, he was thinking a great deal about risk. At the same time, as was often the case, David was thinking about another of his passions, baseball. When he put these two trains of thought together in 1994, the result was a memorable speech delivered to a group of endowment managers, which we published on the TIFF website earlier this year: 25 Years Ago at TIFF. If you haven’t had the opportunity to read it, we think you’ll find it quite interesting. Has anything changed in 25 years? The purpose of this companion article is to answer that question. Within, we’ll reflect on what has changed since David’s initial brainstorm and what has remained true in the world of investing, and in its tailor-made counterpart of baseball.

David recognized that, among sports, baseball holds the best analogues to and sometimes lessons for investing. Baseball success and failure depend on subtle differences among different portfolios of players and subtle decisions made by their managers, the impact of which is highly unpredictable in a given game or series but is telling over the course of a season or multiple seasons. Small differences in baseball’s highly precise, three-figure batting and earned-run averages are only meaningful over the thousands of swings and pitches of full seasons, but inevitably they determine which team wins and which loses. The same is true of the relative performance of investment portfolios.

This is an excerpt from a longer article. Please download the PDF to read more.
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