What is risk today? Could risk aversion be riskier for investors than risk itself? May 15, 2007Posted by deminvest in China stock, goog, Google, growth stock, Internet stocks, investment, investment strategies, MSFT Microsoft stock, risky investments, stocks.
Investing is a risky business for us, the people. We worked to earn that money!
Does that mean we should behave like him?
Not really. Maybe, hiding under his blanket, he is taking more risks than we do bravely facing stock market’s storms.
To figure out what is risky, we need to know what is risk for an investor.
” The most quoted measure of risk is beta — actually a measure of volatility. The general thinking is that a stock that jumps around a lot is riskier than a stock that doesn’t because the volatile stock’s returns will deviate substantially from the market average. Hogwash! Risk and volatility don’t equate. I couldn’t care a lick about whether or not a stock’s returns deviate from the market average as long as those returns are better than the market average. “
I have to agree with that.
“After all, there’s an easy way to take the volatility out of a volatile stock: Don’t check the price. “
He has a point there… If I only check the price once a year, I won’t see volatility!
“the real risk when it comes to investing is not volatility. Rather… risk is “the probability of losing purchasing power over time.”
In other words, if we let our money sit in a bank, we take big risks, that inflation will make us lose purchasing power over time.
Also the world is changing fast. A few decades ago, GM and Ford where considered low risk stocks. Microsoft was considered a risky tech company because its stock price was volatile.
Now Google is considered risky. IBM isn’t. But really, who is facing more risks to be beaten by high growth Indian outsourcers and consultants, Google or IBM? Microsoft itself is actually considered safe if compared to Google, but, who is seeing its products challenged by free open-source stuff? Who is risking to see its expensive applications become obsolete because of Web 2.0 on-line applications? Who is ahead and who is trying to catch up?
US markets are considered safe, even with twin deficit, huge debts and a shaky dollar. China and India are considered risky. Are we sure it is not the other way around?
Is it riskier to invest in an Indian car producer like Tata Motors or on US Ford?
My worse investment ever was on a company linked to US real estate market. If I decided to invest on a company linked to fast-growing Chinese real estate, would I have risked more or less?
Financial analysts seem to suggest that loosers are safe and winners are risky. Are we sure it isn’t the opposite?
I think risk cannot be avoided in such fast changing global markets. Maybe the only way to lower risks is to invest a little bit in everything, everywhere, but…
…I may be wrong!