Economic opportunities carry specific risks requiring active management.
Timing Risk
Economic patterns are directionally predictable but temporally uncertain. Positioning too early wastes capital; too late misses opportunity.
Mitigation strategies: - Scale into positions gradually - Maintain reserve capital - Use options for timing flexibility - Focus on fundamental value - Prepare for extended timelines
Liquidity Risk
Economic disruption can extend longer than expected, creating liquidity pressure even on sound positions.
Protection approaches: - Stress test for extended disruption - Maintain multiple liquidity sources - Structure flexible commitments - Build positions with natural cash flow - Prepare exit strategies
Correlation Risk
Assuming historical correlations creates danger when disruption breaks established relationships.
Risk management: - Question all correlation assumptions - Build truly uncorrelated positions - Monitor correlation changes actively - Prepare for correlation regime shifts - Diversify across multiple factors
Political Risk
Economic disruption often triggers political responses that change rules mid-game.
Defensive strategies: - Understand likely political responses - Position in politically stable assets - Maintain geographic diversification - Build political intelligence networks - Prepare for rule changes