My question is a bit philosophical. As a risk manager I often have to tell portfolio managers to reduce risk (e.g. due to VaR limits or exposure limits). Then usually the discussion arises that if they had had more exposure to risky assets they would have participated more in the rally or in the rebound after the crash.
What I tell them is things like: If we knew when the crash ends and the rebound starts - if it starts at all - then we were rich and would not work here anymore.
Furthermore a naive application of CAPM where more systematic risk leads to higher expected return is not true in all markets at all times (as e.g. Min VAR shows at least in a risk adjusted way).
What do you tell risk takers in order to tame their risk appetite? Where do you reference to in order to underpin your opinion?
A reference could be such as: In a recent paper Boudt et al. give clear indications to minimize risk in a bear market and diversify risk in normal/bull markets of risky assets.