Customer Reviews

The Nature of Risk (Fraser Publishing Library) (Contrary Opinion Library)

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The Nature of Risk is a seminal work for anyone who understands that self-knowledge is key for success in the financial markets, particularly at market extremes. Rather than babble about risk in general, Mamis takes this engine apart and examines its parts, among which are information risk and price risk. He explains that as one's tolerance for information risk increases (the need to know why the stock is doing whatever it's doing), one's price risk diminishes (one is better able to jump in and take advantage of whatever opportunities for picking up cheaper shares present themselves). On the other hand, if one has no tolerance for information risk and must know everything about a stock's movement, his price risk will be that much greater because the price will likely, by then, have risen to an over-extended level. Therefore, having identified these components of risk (time risk is another), one must then balance them out in order to approach the markets rationally and unemotionally.

An extremely important work, particularly for the investor who is plagued by doubt, confusion, and anxiety.

It's been four years since I first reviewed this book (see the next to the last, below), and I still consider it to be absolutely essential for anyone considering any sort of involvement in the financial markets. In fact, it's probably essential for anyone who is considering anything at all that entails more than minimum risk.

The amateurs miss the point. This is not about the best stochastic settings or how to massage the bid and the ask. This is about facing up to the very real risks inherent in the financial markets, including the very real risk of financial ruin. Amateurs don't see the risk; therefore, they don't bother to grapple with it. Instead, they would rather blow up and disappear. If one wants to last, he must come to terms with the nature of risk, his own tolerance for risk, an understanding of how to manage risk. Without that, he's doomed.

I read the first edition of Nature Of Risk many years ago while in college developing a thesis about markets, the media, and mass behavior. This book helped me to sharpen my thinking on those topics, but it also was a sheer delight to read and reflect upon. It gently guides readers to consider their own risk-acceptance (and denial) behaviors in the face of everyday events and circumstances (one of which just happens to be the financial markets). Nature Of Risk is *not* a book that will help you to "win in the markets." But it is a pleasure to read. There are very few writers - especially financial writers - of Mamis' caliber, precision, and throughfulness.

Mr. Mamis steps beyond facts and figures used to analyze the stock market. He examines the psychology and consequences of waiting, learning, and gathering information about potential investment and life choices.

An informed decision would seem to be a sound one. It may very well be, yet in the context of the market, as information risk diminishes (more knowledge is gained about a particular investment), the price risk will increase (assuming positive news results in a rising stock price). Once an investment is deemed to be solid and secure, the existing information will already be reflected in the price of the equity and the potential for appreciation becomes much more limited (price risk increases). The art of balancing information risk and price risk is a central theme of the book, which is discussed, in intricate detail. Also discussed are methods of determining when price risk is likely to be at an absolute minimum -- all news surrounding a company is bad, and no matter how much more bad news comes out the price does not decline further. An interesting "head and shoulders" method of timing the market is presented as well.

Whether it's embarking on a new career, investing for a quick hit, or retirement, taking a new job, signing an agreement or contract, making a new purchase, or getting married, all of life's decisions involve the same basic tradeoff between information risk and anticipated benefits (price risk). The author discusses not only the stock market and investing, but presents mental models from various situations, which most anyone has experienced, and can relate to in some form.

If you are interested in learning about the psychology of the market, or simply exploring and seeking to better understand your own decision making process better, buy this book. It is truly a book about risk, and not one of the over-hyped books blathering on about the stock market

Let me say rightaway that this is a profoundly brilliant book .Since the paleolithic age down to our personal computer era RISK has been the big bugaboo of all investors & speculators__ the dirtiest four letter word there ever was!Justin Mamis helps you view risk from an entirely different perspective : risk viewed as a CHOICE rather than a HAZARD.Risk can never be completely eliminated. However it can be analysed,understood and tamed to one's advantage.Mr.Mamis tells you how to go about dealing with risk in life as well as the market with wit and verve .Also included are very useful and practical insights on decoding the technical signals that emanate from that hysteric,schizophrenic beast : the market !Like all great books this one gives you new insights upon rereading ;a very competent exegesis of the art of technical analysis .

I was reluctant to buy this book based on the first reviews I read. However, I have been daytrading for four years now, and frequently go against the crowd. Perhaps it is this contrarian view that keeps me in this business. I manage a proprietary firm in Denver (Bright Trading) and recommend this to ALL the new traders as well as veterans of the craft. It is fresh, insightful and really gets to the meat of what makes one trader successful while another fails. A great companion to this book is Mark Douglas' book Trading In The Zone.

Firstly, I have a lot of respect for Mamis, so this is NOT to run him or his writing style down.

In-fact, I have given his other books, When to Buy and How to Sell the Five Star ratings as they are very useful and well written.

However, after reading those, this book seems to repeat some of the points made in them and seems a little defensive about Technical Analysis. Avoid this one but positively buy the other two.

I was surprised to see a couple of reviews calling this book psycho-babble. Those criticisms seem off the mark to me. What this book does exceedingly well is explain the psychological motivation behind our PERCEPTIONS of risk. Naturally, the focus is risks in the stock market; however by comparing/contrasting those risks to ordinary activities (e.g. crossing the street) he provides a very clever framework for making his point. If this is indeed psycho-babble, then I would state that it is psycho-babble that you should read and understand if you are putting your dollars at risk.

Much of the market is counter-intuitive to new investors. I think that this book does a terrific job in highlighting WHY that is so. One of the most helpful (to me) ideas in the book was the nature of information, price and time risk. I've never seen any book frame these important (and oft-expensive) risks in such a way. In fact, I would recommend that you buy the book SOLELY for your understanding these risks.

For example, Mamis states, "At the moment of maximum information risk, the price risk is minimal" and "The more information that comes along, the greater the price risk." These seem on the face as superficial statements, but they really are not because of the emotion that comes along at these junctures that mutes the import of such perspicacious statements.

If this is psycho-babble, then it is pscyho-babble at its finest! The book is written in an accessible, conversational tone. It is like sitting in a comfortable chair with a drink (or two!) and talking with an old friend from whom you will learn much.

I can't put the book down. Mr. Mamis' thoughts are unique and exquisitely thought-provoking. He is invaluable in illuminating the self-examination necessary in my work as an investor, and my life as a man.
A favorite passage: "The risk can never be cured by knowing enough. We need, we crave, trust and belief from others, and their acceptance, even though they really may 'not know us.' But when information is insufficient we need the trust and belief in ourselves, and the inner acceptance that we'll be okay anyhow. We need the discipline to accept whatever is available. We need the experience to understand all the ifs, ands and buts, and yet still confront the risk, and make the decision. Setting ourselves free from the quest for information, oddly enough , is what reduces risk even as it appears from the freedom itself that risk is being scarily increased. Oh my, freedom, that's dangerous."
Mr. Mamis is one of my 'all-time favorite' writers.

Justin Mamis talks about risk and knows what he is talking about! He describes different types of risk, like information risk or price risk. You can have less price risk at the expense of information risk and vice versa.

The fact is you can never know everything about a particular stock or index. You must base your trades on the information you currently have. The longer you wait to gather more information, the further the price moves away from a lower price risk point. Now if you take a trade with low price risk, you are usually getting a higher level of information risk, because you may not have some pertinent information you may need or want. Is that an issue? Maybe. Luckily the author speaks on the subject of understanding what the market is telling you and if its not good, get out.

The author talks about intuition. He basically says you need to gather enough information to intuitively feel confident about taking or not taking the trade. You cannot predict with perfect accuracy what the market is going to do. But you can listen to what the market is telling you and then assess the risk and evaluate your trade.

The author writes in a way that really makes sense to me. For instance in one section he talks about taking trades as compared to crossing the street. There is risk when you cross at the corner with the traffic light. There is more risk when you cross in the middle of the block. You have to determine your risk before you step off from the safety of the curb. You also have to understand that standing on the curb is not as safe as you may think. There is risk in everything we do. You need to look at risk in a more positive light. Forget the dictionary meaning of risk as peril or danger. Assess the risk and take the trade.

This is the first book I have read by this author. I have read some of the reviews and they seem negative on it compared to the authors other two books, When to Sell: Inside Strategies for Stock-Market Profits and How to Buy: An Insider's Guide to Making Money in the Stock Market. I was excited to hear that because I was halfway through this book and realized if his other two books are better, I have to have those too. So I ordered them and look forward to reading them.

I believe this book should be on every successful traders short list of "must-read" books.