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I was reading a SEBI Investor Survey Report. There was a section in it where they surveyed “why Indians don’t invest in equities” and also our perception to the word “risk”.
Hence, thought of sharing my view.
Below is a snap of the survey report.
A thread on concept of risk: -
Hence, thought of sharing my view.
Below is a snap of the survey report.
A thread on concept of risk: -
If you Google the meaning of ‘risk’, you’ll get the answer as: -
“A situation involving exposure to danger.” (or) “Expose (someone or something valued) to danger, harm or loss.”
And then you hear ads saying "Mutual Funds are subjected to market risk"
RISK!! Expose to DANGER???
“A situation involving exposure to danger.” (or) “Expose (someone or something valued) to danger, harm or loss.”
And then you hear ads saying "Mutual Funds are subjected to market risk"
RISK!! Expose to DANGER???
My view: -
Risk ≠ Danger
Risk ≠ Loss
Risk ≠ Thrill
Risk ≠ Volatility
Risk ≠ Opportunity
Risk = Uncertainty (When the outcome is unknown)
Because if you know the outcome, you’d act accordingly.
For ex: -
Risk ≠ Danger
Risk ≠ Loss
Risk ≠ Thrill
Risk ≠ Volatility
Risk ≠ Opportunity
Risk = Uncertainty (When the outcome is unknown)
Because if you know the outcome, you’d act accordingly.
For ex: -
If you know a company is bad, it's stock will definitely go down; you will not invest (you will instead short-sell).
While giving a loan, if the banks know you will not repay, they won't give the loan.
There's no question of risk, danger or loss here.
While giving a loan, if the banks know you will not repay, they won't give the loan.
There's no question of risk, danger or loss here.
However, if the banks give you the loan, then there's an uncertainty involved about the future payments. Hence its called a default risk
After doing extensive research on a stock, you don't know how markets will perform in the short-term, hence market risks (or systematic risk).
After doing extensive research on a stock, you don't know how markets will perform in the short-term, hence market risks (or systematic risk).
In reality, we take risks everyday.
By crossing the road, driving to work, we put ourselves in risky situations, & we're not worried much.
We’ve learnt to manage them by following certain behavior.
Ex. looking before crossing the road or reducing speed while driving.
By crossing the road, driving to work, we put ourselves in risky situations, & we're not worried much.
We’ve learnt to manage them by following certain behavior.
Ex. looking before crossing the road or reducing speed while driving.
Similarly in investing, there are certain behaviors.
Enough emergency funds, investing in good companies for long-term etc.
Then the daily price fluctuations won’t matter.
You’re unlikely to be forced to sell during that time. Instead, you might use that opportunity to buy more.
Enough emergency funds, investing in good companies for long-term etc.
Then the daily price fluctuations won’t matter.
You’re unlikely to be forced to sell during that time. Instead, you might use that opportunity to buy more.
On the other hand, if you only have a salary income & some savings, and you take a long-term debt (for ex. home loan) which comprises major portion of your expense.
You have to pay the fixed (EMI) cost for 20-30 years whether you get the salary or not.
You have to pay the fixed (EMI) cost for 20-30 years whether you get the salary or not.
You are betting that you will definitely be able to make consistent EMI payments regardless of any future events, come what may.
This sounds like a bigger risk to me because there’s nothing more uncertain than the future.
This sounds like a bigger risk to me because there’s nothing more uncertain than the future.
Now think about this.
Can you predict accurately whether the market will go up or down in next 1 minute?
In next 1 hour?
By end of the day?
1 month?
1 year?
Can you predict accurately whether the market will go up or down in next 1 minute?
In next 1 hour?
By end of the day?
1 month?
1 year?
The answer is no.
(There is a 50% probability of getting it right, but nobody can say with 100% certainty).
We like to do predictions, we enjoy it. We like to feel powerful.
But in reality, despite several researches, nobody can be certain including any experts or economists.
(There is a 50% probability of getting it right, but nobody can say with 100% certainty).
We like to do predictions, we enjoy it. We like to feel powerful.
But in reality, despite several researches, nobody can be certain including any experts or economists.
However, the chance of accurate prediction keeps on increasing when you increase your time period.
If you take a 5 year view, there are more chances that the market will recover & close in positive.
If you think 10-15 years, it’ll surely be a positive news.
If you take a 5 year view, there are more chances that the market will recover & close in positive.
If you think 10-15 years, it’ll surely be a positive news.
Not investing your savings properly is like working hard to start your business, hiring lot of employees. Instead of getting them to work, you work all day and give them long vacation. When you need their help after 40 years, they're lazy and too weak to help.
Who is at fault?
Who is at fault?
The real risk of inflation is not the fact that it’s increasing at such high rate now; it’s the fact that it happens slowly & quietly, often ignored. Hence many don’t think of investing seriously which is a real risk in the long-term. https://twitter.com/invest_mindset/status/1294957077157171200
Danger is a possibility of something going wrong (only downside). Risk has both upside and downside.Loss is a downside outcome, generally when the risk is not managed effectively.Volatility is fluctuations due to our reactions & is helpful to smart long-term investor.
Opportunity is just a possible action that can be taken.Thrill in risk could be due to 2 reasons, when you underestimate the potential loss, or when you can easily afford to loose what you've risked.Finally, here are the key takeaways: -
Instead of removing risk completely. Try to reduce it. Learn to manage it effectively.Don’t risk more than you can afford to loose.When uncertainty is high, focus on risk before anything else.
Look for opportunities where you risk less, get more reward.Increase your knowledge.Research, know more, reduce uncertainty.Prepare, reduce risk, Increase the reward.Thank you.
