Different Types of Risk in Investing

Different Types of Risk in Investing

Risk is what we take the moment our eyes open in the morning. There is a chance the water in the shower could be too cold or too hot; the former makes for a jarring wake-up call, the latter makes for a possible visit to the hospital.

But of course we have knobs that clearly indicate hot and cold, and we also have to ability to feel the water, testing for the moment it reaches perfection.

As the day moves forward the risk increases exponentially. We, however, moderate our lives to adjust for risk. If that nut in the car in front of you looks like he has had too much to drink, you simply switch lanes and move around him, maybe giving him a dirty look as you pass by. You continuously check and assess risk when you drive your car, looking at the rearview mirror every few seconds.

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