"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Saturday, February 2, 2013

Managing Risk and Minimizing Losses

The Dangerous Fallacy in JPMorgan’s ‘Whale’ Report: "While the JPMorgan Chase report said what investors and regulators needed to hear – it provided a detailed analysis of what went on and outlined strategies to address it – the document would have been more convincing had its authors simply acknowledged that ultimately, not every risk can be anticipated and removed. Perhaps they know better – after all, they’re in the business of risk transfer – or perhaps it isn’t politically acceptable to say that, just as one day we’ll die, one day every organization will find that, despite careful planning, something goes awry. . . . It’s called career risk, and in this case, it’s related to compensation. Managers needed to do a better job of telling the team that they would still be “properly compensated” for safeguarding the bank’s well being and minimizing losses, even if they negatively affected the company’s overall profits. The traders need to understand that, in many circumstances, managing risk and minimizing losses can be of as much value to the firm as capturing profits."

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