Hi Willie,

I still wouldn't call that 'risk' - I would call that what it is, volatility. Most people that short stocks or other securities do so based on fundamental analysis. Your point is well taken, though...as a portfolio manager I flirted with a possible screening mechanism that calculated upside and downside volatility for individual securities. Ideally you want the one with large upside volatility divided by small downside volatility. However, I rejected this because I felt it just added a level of abstraction to my analyses. Instead I focused on the business risks that would affect my business'/credit's ability to pay out a share of its operating earnings to me in whatever security I owned.

At this juncture and time in finance we do not have good formal answers to the risk question. Instead, we are stuck with the unfortunate reality that Markowitz chose volatility for mathematical expediency in his paper from the 1950s. I think that is a poor excuse for not getting more sophisticated about these issues.

Yours, in service,

Jason