Hello…A Big Welcome to all of You…
Today… I am Going to talk about 5 Generous Risk Factors which everyone should know…
Risk and volatility are not one in the same.
As Per I Think:-Some risk is necessary to make money on your investments.
Risk is an integral part of investing. Generally speaking, it is the counterbalance to return. Although we hear many money managers and advisors talk about “Risk Management,”
Here are a few key points I took from his memo, titled, “Risk Revisited.”
1- Volatility is not risk.- Academia has defined risk as volatility because it can be measured. It is a foundational concept underlying the majority of financial models. Stocks are often assessed using their betas, or their fluctuations, in relationship to the market. In fact, beta has become perversely ubiquitous with risk.For example, the utility sector’s beta is about half that of the Standard & Poor’s 500 index (depending on the time frame measured). It would be a grave mistake to assume that by purchasing a utility, one is exposed to half of the risk of the market.
2- Risk is the potential to lose money permanently.- Continuing with the utility company example, there are a plethora of risks associated with stocks. Volatility may provide a modicum of insight into the overall risks. However, it dupes the investor by failing to account for anything company specific
3- Risk is necessary- Attempts to predict the future will most often lead to failure. However, an investor can understand how the risks relate to each company without necessarily predicting the exact outcome. Great investors are astute at thinking of a range of possible outcomes and selecting investments that have more ways to win than lose.
4. Nobody knows the unknown, but some investors don’t know this- Most investors realize this is a loser’s game, as nobody knows where the market will be in the near and long term
5. Prudent acceptance of risk is superior to shunning the unknown- Risk must be taken or there will be no return. If an investor has a short time horizon, they should wish to avoid illiquidity risk, but they may be comfortable with leverage risk or credit risk. On the other hand, just because an investor has a high risk tolerance does not mean it is smart to take unnecessary risk.