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A child taking her first steps risks falling down. And fall, she does. On the other hand, Formula One car drivers risk crashes to win the Grand Prix. But if they do crash it could be the end of their season, career or even their Life! Risk is the possibility of an undesirable event happening. When the risk materializes, when the undesirable event does happen, it happens fully and completely. The event does not differentiate between a person who can afford it and one who can’t. If we invest in a start-up, there is a risk it will never take off. If the start-up fails, it means the money is lost completely. That loss has no reference to who the money belongs to, whether the person is rich or poor, a man or woman, salaried or self-employed. When the child, just learning to walk falls, it falls. Period. But we manage the risk by keeping the floor clear of sharp objects. If we give railings to the child so that it won’t fall, the child will get stronger hands rather than legs. The key job of the parents is to manage the risk. Not to eliminate it. Because risks are essential to success, including financial success. In our previous example of the start-up investment (assuming the venture is a genuine, investment-worthy venture) we can manage the risk in two ways. One, by choosing the proportion of our wealth that we risk, so that the failure of the start-up doesn’t mean the failure of our finances. And two, by checking how valuable & useful are the benefits to us, if the start-up is successful, in comparison to the size of the risk we are taking. Risks are NOT temporary, but if managed properly, the consequences need not be debilitating. Risks do not ensure success, but pursuit of success necessarily entails risks. We have the choice of managing them or letting them dictate the fate of our future. - Devang Shah |
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Right Returns |