Process / Philosophy · Series: Managing Investment Risk · Post 1 of 6
July 15, 2026
By Rob Nicoski, CFA · Disciplined Growth Investors · dginv.com
Recently, I was scrolling through the limitless selection of movie titles offered by a prominent online video streaming service when my attention was drawn to a documentary titled Free Solo. The cover art for the film beautifully captured an iconic vertical rock formation in Yosemite National Park called El Capitan. On the face of this 3,000-foot sheer granite wall, about halfway to the top, was a solitary climber. Amazingly, he had no safety apparatus. He was completely untethered — no rope, no harness, nada.
At the time I was unaware of the fact that “free soloing” literally refers to the act of rock climbing unassisted by safety equipment. I’m not sure that knowledge would have changed my initial reaction, which was to question this young man’s sanity. The thought of him plunging to his death was unnerving to say the least. Yet I was drawn to the prospect of gaining a better understanding of why someone would consciously accept what appeared to be an intolerable level of risk.
As the documentary unfolded, my original knee-jerk assessment of the risk involved in his venture began to gradually shift. Yes, the prospect of this man plunging to his death was still a horrifying possibility; it’s apparently not uncommon in this type of pursuit. However, contrary to my preliminary assessment, he is not some lunatic with a death wish screaming “Watch this!” as he scurries haphazardly up the side of the cliff. His name is Alex Honnold, and he is one of the most accomplished free solo climbers in the world.
The documentary outlines Mr. Honnold’s attempt to be the first person to free solo El Capitan. It is difficult to imagine an endeavor more fraught with risk than climbing a vertical wall of granite three times the height of the tallest skyscrapers in the world with no tether. At times, I found it impossible not to recoil in fear for his safety. Yet over the course of the film, it became apparent that Mr. Honnold is not just an accomplished climber, he is also a master of risk management. I admit this assertion likely sounds ridiculous given he is intentionally accepting what most of us would consider a foolish level of life-threatening risk, but it is highly unlikely he could have survived more than one thousand free solo climbs without a serious and effective commitment to mitigating risk.
I began to appreciate that Mr. Honnold applies a surprisingly rational approach to an irrational activity. While the documentary seizes on the sensational quality of his quest, it also explores how Mr. Honnold integrates risk management into every aspect of his preparation. He carefully researches and maps out his preferred route up the face of the mountain — scrutinizing and documenting the nuances of each nook and cranny. Then he practices and memorizes the features of every foot and handhold he will use during his ascent. At one point, he abruptly abandons his climb because “it did not feel right” that day, honoring the intuition developed over years of successful climbs. An underactive amygdala may have influenced his choice of vocation, but it did not undermine his comprehension of the lethal risks involved.
Clearly, free solo climbing is not an activity I would consider even in my least sensible moments — of which my wife Mary would argue there are far too many. Yet his tale underscores the notion that even in the most perilous and frankly mindboggling endeavors, applying sound risk management principles can greatly reduce the probability of a catastrophic outcome. This is the essence of risk management.
Benjamin Graham, the progenitor of modern security analysis, captured this oft-misunderstood reality when he shrewdly observed: “The essence of investment management is the management of risk and not the management of returns.”
It may seem odd to open a paper advocating for prudent risk management by highlighting an athlete who has dedicated his life to an unbelievably risky endeavor like free solo climbing. While we cannot answer the question of what drives Mr. Honnold to do what he does, we are in awe at what might be the single greatest athletic achievement of our lifetimes — as well as a textbook example of how to mitigate risk when everything is on the line.
Mr. Honnold demonstrated in dramatic fashion that a properly constructed risk management approach starts with a risk mitigation plan that carefully considers the specific risks associated with an activity or endeavor. And it is precisely this appreciation for specific risks — rather than risk in the abstract — that separates the investors who endure from those who don’t.
Before going further, it is worth pausing on a distinction that matters enormously in practice: the difference between risk management and risk mitigation. The terms are often used interchangeably. There are, however, subtle differences that are important to understand.
Risk management is a comprehensive system for controlling exposure to and the impact of risk. It represents a strategic framework for addressing risk in any endeavor. Risk mitigation is part of the risk management process — it speaks to the diverse set of tools or tactical approaches one can employ to reduce the chance of a risky outcome as part of a systematic risk management process. In those circumstances where risk cannot be reduced to an acceptable level, outright avoidance becomes the only sensible choice.
Mr. Honnold’s entire preparation for El Capitan illustrates this distinction beautifully. His training regimen, his route mapping, his decision to abandon his first attempt — these are not isolated tactics. They are components of a comprehensive system designed to give him the best possible chance of surviving an endeavor with no margin for error.
Like Mr. Honnold, investors are free to embrace strategies with varying degrees of risk. Ultimately, those investors who can effectively and continuously understand and mitigate risk have paved the way towards long-term investment success. Risk mitigation is not only fundamental to investing success, but also the only thing an investor totally controls.
There are two notable differences between Mr. Honnold’s risky adventure and those of the investor: time horizon and continuous choice. When climbing, Mr. Honnold receives immediate feedback on his decisions — make the right move, keep on climbing; make the wrong move, plunge to serious injury or death. Feedback for investors is measured in years and decades, a fundamentally different time horizon. Second, once Mr. Honnold scaled partway up the mountain, he could not reverse his decision. He had to keep climbing. Investors in publicly traded securities have the ongoing ability to change their decisions. This is one of the greatest inventions in the history of capital markets; it is also the most misapplied.
Mr. Honnold had extreme motivation that comes from no escape. He could focus solely on the next step. Investors in public markets possess, daily, the ability to escape the vicissitudes of the market. They misuse this gift, favoring the easy ability to exit an investment over the need to make thoughtful, fact-based long-term decisions. Proper risk management would suggest they should invest as if there were no escape — that they should purchase securities with the intention of never selling, and only change their investments based on a careful assessment of the known facts.
Mr. Honnold successfully managed extreme personal risk far beyond most investors. We all can learn from his example.