The first type is the risk of failure - loss of capital. You invest in something, and it tanks - you lose your money.
The second type is the risk that your investment appreciates or grows slower than the rate of inflation. This means that although you didn't lose money, you lost value.
The third type is the risk that your investment beats the rate of inflation, but still produces unsatisfactory (e.g. below market) returns. Your investment is growing and gaining in value, but it is not meeting your expectations.
The last type of investment risk is where your investment is able to produce a satisfactory return over the short-term, but the return is unsustainable over the long-term. In other words, its long-term success is not reliable or predictable.
Understanding risk with this framework allows you not to treat all risk the same. Risk is not just the loss of capital, but the loss of value, opportunity, and trust (reliability). This framework also forces an investor to ask a different set of questions for each type of risk in order to mitigate that risk.
For instance, with the first type of risk, the investor might focus on the chances of losing money on his investment. With the second type of risk, the focus might be on competitiveness and the value that investment (e.g. a company, a property) produces for others.
With the third type, the focus would be on primacy and positioning - how strongly positioned is the investment in its market or field or area. And with the last type, the focus would be on how well-managed the investment is. Is management reinvesting profits back into the company or property? Are opportunities for growth being missed?
Armed with this framework, an investor can look at different investments differently, providing more nuance to his or her investment decisions.