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In our January article last year, we had promised to answer the question ‘How much risk should I take?’ Let’s try to address one aspect of that question today.
What is a risk? For a fisherman a windy day is a risk. For a sailor, not having winds is a risk!
Popular media presents risk and fear as one heady cocktail. Not only a lot of time and energy is spent on figuring out and assessing our psychology and attitude to risk but so many people make crucial decisions based on that! That is likely to be not just efforts misspent but also a bad basis for taking very important decisions.
While Fear is an emotion, Risk is NOT. Risk is the possibility of a desirable outcome not happening. Sometimes we may be afraid of that, sometimes we may not. But that doesn’t change the fact that it is a risk i.e. being afraid does not define risk! Let’s take a look at some everyday examples.
For instance, falling prices of vegetables may be a welcome possibility to the city consumer but it’s a huge risk for a farmer. Similarly, a fall in the stock market is considered as an opportunity by some people and a risk by others. But is it a risk for us? For our specific circumstances? The right question to ask is, does the fall impact our immediate goals? Keeping in mind the timeframe, does it even put our future goals in jeopardy? Or are we just feeling bad because tonight our portfolio is of lesser value than last night? That is an emotion, not a risk.
It gives us a perspective to see our investments as a part of a careful design that will help us fulfill our intentions in life, instead of watching it like a score of our favorite game. Since our intentions are unique, so is risk. What is risky for someone else may not be so for us and vice versa.
And our aspirations are very special to us. No single other person is likely to have the same set of goals and circumstances as we have. It would make our lives, and this world, a better place if we do not judge our dreams, we do not benchmark our aspirations to those of others. What is truly important to us and only us, is unique. And therefore, so is risk!
- Devang Shah
April 1, 2022
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