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Wisdom of the Ages - Part III

Marcus Aurelius

If you missed PART I - click here to read it.

If you missed PART II - click here to read it.

It is often said that two emotions drive financial markets, namely fear and greed.

Many of you will remember the 1987 movie, Wall Street, where the protagonist Gordon Gekko played by Michael Douglas, launches into a speech proclaiming that “greed is good”.

“… The point is, ladies and gentlemen, that greed - for lack of a better word - is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind.”

~ Gordon Gekko

We are less inclined to this way of thinking than Gordon Gekko is.

Based on the “greed is good” philosophy the more risk we apply to a strategy, the greater our reward should be. As you can see in the graph below, the risk versus return curve flattens out toward the right and investors will in reality experience that, as risk is increased beyond a certain point, there is no notable additional return for the increased risk.

  • When you take some risk – you are rewarded with some return.

  • Take a little bit more risk and you will generate more return.

  • However, because of the shape of the curve, once you start taking a lot more risk, you generate incrementally less return.

  • As you will notice, more and more risk (i.e. greed) does not necessarily translate into more and more return. In fact, the investor reaches the stage where they are essentially generating return-free risk.

We have great respect for the principles embodied in Eastern philosophies which promote wisdom, ethical conduct and meditation.

Here the focus is on “Right understanding”, “Right intention”, “Right action” and “Right effort” – which achieves a true assessment of reality, harmony and prevents over-indulgence.

At Gryphon, we tend to be cautious, prudent. We go to great lengths to preserve capital. This ensures that our investors are appropriately rewarded without taking unnecessary risks.