The prevailing view of “risk” used in the financial services industry defines “risk” as total volatility, which treats upside and downside “risk” the equivalent. From the beginning, Cougar Global has recognized the inadequacy of this definition of risk. We believe a prudent investment philosophy is to strive to protect in down markets and to participate in up markets when possible.
The research on downside risk management was conducted at the Pension Research Institute, founded by Dr. Frank Sortino in San Francisco, California, in 1980. Dr. Sortino long ago recognized that the degree of risk involved in any financial decision depends on what goal the investor is trying to accomplish.
Investors should note that every investment decision involves a trade-off between risk and return; further, one’s overall return is impacted by compounding, which supports Cougar Global’s belief that protection of principal may result in long-term outperformance.