This is possibly dirtiest four letter word that you can think of
It’s probably the dirtiest four letter word that you can think of R-I-S-K. Brokers and Bankers throw this around with least care, you know… “Risk Reward Ratio” or “High Risk is equal to High Reward”.
What if you thought about risk as neither good or bad, but as something essential? Yep, a healthy dose of risk is required for you to be ‘living’ so to speak. I have a general saying…
Take care of the downside, and the upside will take care of itself.
Let’s take a closer look at whether you’re risky business? Let’s say you buy stock in a company, it’s a decent company. Earning a decent amount of profits, and you know it’s low risk because they’re surprisingly doing well.
Now, what if I add to the above, that this is actually a startup. And that profit was only in the first year of operation (hard to believe a startup with profit from day one, but stay with me). Does your perception of risk change? Because I said “startup”, you thought it was highly risky.
Ok, let’s say the startup company suddenly became a favourite amongst Venture Capitalists, and they’re all pouring into it. Great! Your stock in that company is at an astronomically high value… but has your risk changed?
Well, if you were in the stock market, and suddenly your stock moved upwards, you would be overweight on the stock. What if the stock market crashed, and you started losing the gains you’ve painstakingly made over the last 12 months? What if you have more at risk than you did when its a small position in terms of value? Now you’re over exposed on one company. That’s risky!
Time will change your perspective. So will circumstance. One man’s’ risk is another man’s treasure. Just like oxygen, you can’t have too much or too little — you need the right amount of risk to make life work.
Originally published at jpmartin.com.