What Does Risk Mean?
It’s time again to learn about you, the readers. Awhile ago visitors of this blog were asked which word first comes to mind when they hear the term, “risk.” Here are the results. Thanks to everyone who voted.
It appears most readers associate risk with uncertainty or opportunity. I would choose uncertainty as the first thing I would think about when facing or talking about risk. Opportunity would probably be the next thing I would think about. Opportunity and loss can both derive from uncertainty but financially savvy people are usually cautiously optimistic about the unknown and we try to seek out serendipitous possibilities. Investors have to think like heart surgeons; we must never bypass a good opportunity. As Winston Churchill once said, “a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Usually the best chance we have at success also comes with a good amount of risk. But the good news is we can lower the risk without diminishing the potential gain. 🙂 We can lower risk through self knowledge and an understanding of the financial world. A lack of wisdom leads to risky behavior. As Warren Buffett once said, “risk comes from not knowing what you’re doing.” That’s why countries that are less financially literate tend to have a less affluent population. People who work in business and investment banking understand how finance works, and not surprisingly they tend to make a lot of money in their fields. The more we know, the less likely we are to fail, and the less risky our decisions will become. 🙂
Random Useless Fact
According to the BBC, in some parts of Australia, 90% of koalas are infected with STDs. Koalas are at risk of becoming extinct because over half of them have chlamydia.
While all these seem to be reasonable answers, risk really only means permanent loss of capital.
Sounds like an accurate description to me.