Reflections on Risk and Investment Management

Risk Categorization and the Joseph and Noah Effects

Just about a year before the breakout of COVID-19, I published a short article at GARP titled “In Risk Management, Fear is a Step to Investment Wisdom,” which discusses how to transform investment uncertainty and risks into smarter decisions and more resilient outcomes by using extremes-aware modeling approaches. I find this topic even more relevant today, when uncertainty spreads much farther than investment outcomes, and while the market is facing unprecedented times.

During the month of April, analysts lowered earnings estimates for companies in the S&P 500 for the second quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) declined by 28.4% (to $26.46 from $36.94) during this period. How significant is a 28.4% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters?