On risk and liquidity: Volatility is a form of risk, but it is by no means necessarily the most important. One of the things we learned in the financial crisis is liquidity is important and if you run short of cash in a period of distress, you end up with a set of options which are all terrible. And without going into all the detail, CalPERS found itself in a liquidity squeeze in the fall of '08, and to get ourselves out of it, we had to sell assets. Well, if you're in the midst of a panic and you're selling assets, what can you sell? You can only sell your best stuff. And when you sell into a panic like that, you're marking your portfolio with real losses. That was an extremely painful lesson for us, and obviously we've taken that to heart in a number of ways. - Joseph Dear, the chief investment officer of CalPERS, US's largest pension fund.
Uncle8888 fully understood this advice coming from US's largest pension fund and has carefully plan to avoid having to sell his best stuff in the midst of a panic to meet liquidity needs.
It is far better to regret not making more than to feel sorry for selling into a panic and locking permanent losses.
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