Risky Business

Most things are going well for most investors. So let’s talk about risk.

People are masters at discounting risks that threaten the continuation of their past success. Winning feels good, but winning and then assuming you’ll keep winning indefinitely by doing what you just did is pure heaven and too hard to let go of.

Risk hides in the familiar and screams loudly in the unknown. Somebody somewhere is texting while driving about the risk of nuclear war.

Risk is everything that lives outside your ability to endure nonsense, hassle, delay, embarrassment, and setback. All are unavoidable realities of life, so it’s often better to increase your ability to endure than attempt to avoid all trouble.

Risk has two parts: How hard it hits and how long it lasts. In anything that compounds, a small hit that lasts a long time is easy to ignore but devastating to results.

Risk has two stages: First, when it actually hits us. Then, when its scars influence our subsequent decisions. The crash, and the lingering pessimism that does as much damage.

Risk’s greatest fuels are leverage, overconfidence, ego, and impatience. Its greatest enemies are having options, humility, and other people’s trust.

Asking what the biggest risks are is like asking what you expect to be surprised about. If you knew what the biggest risk was you would do something about it, and doing something about it makes it less risky. What your imagination can’t fathom is the dangerous stuff, and it’s why risk will never be mastered.

Risk is as open-minded as they come. It doesn’t care where you went to school, who you voted for, what your goals are, or how you expect the world to work. It also doesn’t read history books or watch the news. It only knows that all good things tend to not go on forever without interruption.

Risk is hard to define, and means different things to different people. To me, it’s anything that prevents you from doing what you want in the future that could be avoided with an action today.