Dealing with risk

I’ve been thinking about various strategies for dealing with limiting losses.   Many investment strategies exhibit moderate upside potential, with large exposure to downside risk.  For example, on average the broad equity markets have shown annualized gains in the range of 10% over the long term, but these gains are often punctuated with large downside risks (market panics) that are deep and fast. This asymmetric behavior has discouraged many investors over the years–when a quick sequence of  losses overwhelms years of building slow profits.   This post on self evident shows that other people are thinking about this, and that the CBOE is developing a product that will attempt to counter the “black swan” events that the Longs dread.