Risk is the probability of losing purchasing power, not the volatility of the price

The idea

The 2011 letter defines risk as the reasoned probability that an investment causes its owner a loss of purchasing power over the holding period, and on that definition calls bonds and other currency-based assets, usually labelled safe, among the most dangerous. A price that moves is not a loss; a return below inflation over decades is. The same letter works the gold comparison, all the world's gold as a cube against all US cropland plus sixteen Exxon Mobils, to show why an asset that produces nothing depends on an expanding pool of buyers. It is a definition of risk that most finance courses do not teach and most long-term investors eventually adopt.

Measure risk as the chance of ending the holding period with less buying power, which makes volatile productive assets safer than stable unproductive ones.

How to use it

For a proposed safe asset, compute its real return over the last twenty years. If it is negative, say so when someone calls it safe, and name the horizon over which the volatile alternative was the safer one.