The risks you take determine the values you treasure. In Florida (or any retirement community) a common joke gets repeated about people who avoid the risk of buying green bananas. On the other hand, these same folks get to bingo every Wednesday night.
Warren Buffet, the sage of Omaha explains his understanding of risk: “Charlie Munger, (Buffet’s partner at Berkshire Hathaway (BRK) and I detest taking even small risks unless we feel that we are being adequately compensated for doing so. About as far as we will go down that path is to occasionally eat cottage cheese a day after the expiration date on the carton.â€
Essentially, risk gets measured by compensation. If you know that the risk you take will deliver compensation to achieve your investment goals, it is worth doing. If not, you end up with uncompensated risk. In many instances investors take uncompensated risk unwittingly. Understanding investment risk is the first step in determining the structure of your investment portfolio. Risk always taunts wisdom with untested and unknown results.
“Wisdom is supreme; therefore get wisdom. Though it cost all you have.” – Proverbs 4:7
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