More on Risk! February 9, 2009Posted by shaferfinancial in Finance.
Tags: emotions and avoiding risk, managing risk versus avoiding risk
I have been posting much on risk of late and why investment risk is rarely spoken about honestly. The reason is that recent history has allowed human emotions/psychological foundation to develop in such a way as to pervert our understanding of risk. Just 1 hundred years ago risk was something we lived with on a daily basis. Risk of early death, risk of going hungry, risk of loss of children, etc. was real and present. Since then, we have progressed to a point where those risks are minimal for most folks in the modern world. I’m not saying it never happens, just that when it does it is a very uncommon occurrence.
We live in a world that has created a nice cocoon around us, allowing us to forget that human beings developed around the idea of managing risk. We developed weapons so as to manage the risk of being killed by animals of prey or other human beings, we learned argriculture to overproduce food so we can more easily manage our risk of making it through winters or drought or blight.
Somewhere over the last 100 years we have lost our ability to manage risk, instead turning to avoiding risk. Ironic isn’t it, what made us so successful as a species, has now been changed to something that is impossible, living a risk free life.
I point this out during a time when millions of Americans have lost there jobs, or seen their businesses crash down around them, or seen their investments lose 40% of its value. Now all these things are terrible situations to have to live through. But they were also predictable in that they have happened before, many times to folks. Now folks are running around on an emotional roller coaster because they haven’t learned how to manage risk. Anyone that is an employee should understand that they could lose there job for any one of several reasons at any time. Anyone that runs a business should understand that their business could fail for any number of reasons at any time. Anyone that invests should understand they could lose money at any time. So why weren’t we prepared for these predictable events? Because we are so busy trying to convince ourselves our goal is to eliminate risk, when really our goal should be to manage it!
Next post will talk more directly about managing risk. But what you want to remember is that first you get the right equipment and make sure there is an experienced person to help you.
Then you can make your ascent!