Our lives are not a monte-carlo simulation. Because we all live in a multi-period world where we have a single investment portfolio that compounds over time, managing risk can help us maximize our long-term growth rate even if it seems foolish in hindsight.
While few investors explicitly hold long/short portfolios, every active portfolio can be thought of as the benchmark plus a long/short representing the active bets. We use this framework to distinguish the quantity versus quality of active exposures.
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