Consequences Of Avoiding Risk
If there is one great truth about investing, it is that risk and reward always present themselves as a team. You simply cannot get a clean shot at reward without risk sitting on your shoulder the whole time.
In the modern era of stock investing, we have had some of the most neck-snapping moves in a relatively short time that the market has ever experienced. For many investors, the only logical reaction to this volatility is to avoid the stock market completely. I have one friend who, whenever he accumulates some cash, just buys a bond. He reasons that capital preservation (with the peace of mind that it brings) and the small interest that accrues makes it a good bargain.
Maybe so. However, that is true only if your level of risk avoidance is so high that you are not willing to tolerate any risk at all. Research has shown that such people will be missing the gains that are possible when an informed investor participates in a bull market. Missing out on the possibility of big gains is called Opportunity Risk, which illustrates once again that every strategy comes with some kind of risk attached.
In just about any story you read on stocks, bonds, old coins, wine, art, gold, platinum or any other asset class, a responsible author will always review the potential downside. And for every Antiques Roadshow treasure you hear about, you know many others bought the wrong thing or bought at too high a price.
But in the final analysis, the best you can do is accept that risk is always going to be there and strike the best balance between risk and reward that you can.
There is a sweet spot somewhere between sitting on the beach under an umbrella wrapped in a blanket and never getting your feet wet and jumping into the water without knowing what’s under it.
And just to point the obvious, for companies who want to mitigate risk in any kind of equity investment, InfoWARE suite of solutions provides risk management analytics calculator like Constant Growth, Capital Asset Pricing Model(CAPM), Beta Chart, Value at Risk(VAR), Bond Valuation and a host of others. InfoWARE Chart and Analytics Executive Dashboards at a glance give timely notification to management of the direction of risk in business lines.
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