Some Thoughts on Risk

Many people translate as how much an investor can lose, thinking that the more you wager the more you can win. That is simply your margin. Risk is much more affiliated with the investor’s knowledge and temperament in regard to how much he can possibly gain or forfeit.

In Layman’s Terms: One can be a professional gambler and not risk a penny, hence he knows what he is wagering and what his odds of winning are. If he has a good hand he will likely bet big. A Bond on the other hand can be bought with nothing but utter speculation and hope. For instance those who buy Junk-Bonds for a measly 4.5% when a simple Money Market will yield over 5%.

Lesson: Anything can be risky and anything can be highly profitable. In 1970 no one believed that stocks would fall and gold would ever rise. Gold was therefore risky. Ten years later just the opposite was true. People ran from the same stocks that would go on to increase over 12-fold over the following 25 years.

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