By focusing on drawdown and thresholds of loss, investment risk becomes a simple concept that can be understood and easily measured. "In investing, risk is the potential for loss and, within a portfolio, the best way to measure loss is through drawdown which looks at the difference in an investment from its market peak to trough given a specific time period," says Jerry Murphey, president and CEO of FolioMetrix.

Murphey recalls trying to apply tactical risk management solutions after the 2001 market shocks. "It was clear that financial markets would continue to move faster than investor expectations and financial advisors would need tactical risk management."

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