What is Risk?

A common misnomer we often hear is, “Isn’t that risky!?!”  Starting a business, investing in the stock market, buying and selling real estate, etc.  What you have to understand is that risk is nothing more than “unknown certainty” or lack of information.  Why is one motivated to fly 20,000 feet in the air on an airplane to arrive at their destination hours earlier but not willing to trade stocks in order to retire faster?  We deal with risk each day, but we are very comfortable with the things we THINK we can control. We become certain about things we have lots of trusted information on.

I started becoming financially free by trading stocks.  When I try to tell others about it, they say, “MAN, that’s risky!!  How do you know when to buy and sell?  Those prices are random, you can’t predict that?”  I respond with, have you traded stocks before?  They quickly respond with “No! but I HEARD people lose lots of money.  When driving on the highway, how are you comfortable with navigating a 2000 lbs vehicle amongst hundreds of other people who are driving at 60+ speeds, but not comfortable with trading stocks?  Putting your life in danger seems a lot more risky than losing money.  The difference is, you know the rules of the game when driving! Learn the Stock Market, and then you will realize it’s really not that hard.  When something becomes a priority, you find the DESIRE, TIME, and RESOURCES to learn it.  Make the want to become wealthy a priority! Learn about it, and the Risk will go away!


4 comments for “What is Risk?”

  1. “Isn’t that risky” hmmmm “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one’s ideas, to take a calculated risk – and to act.”

    Again I love it

    Posted by shannon | January 28, 2009, 4:43 pm
  2. Tight post…It’s all about RISK AVERSION…I learned this in one of my finance classes…

    Risk Aversion – a person is risk averse if, faced with two investments with the same expected return but different risks, he prefers the investment with the least risk. Moreover, a risk averse person will prefer some investments with lower expected return and lower risk to some investments with higher expected return and higher risk

    For Example: Take 2 particular investments (A&B)…

    Investment A:
    Pays $130 with 50% probability
    Pays $80 with 50% probability

    From statistics class the Expected Payoff of A: $130*0.5 + 80*0.5 = $105

    Investment B:
    Pays $210 with 50% probability
    Pays $0 with 50% probability

    From statistics class the Expected Payoff of B: $210*0.5 + $0*0.5 = $105

    As you can see, both investments have the same expected payout out of $105, however, a RISK ADVERSE person would choose Investment A because no matter what happens they feel they will get something, even though it could potentially be less than the maximum possibility.

    Most people in this world would choose Investment A rather than take a chance of getting a higher payout (or losing everything) with Investment B.

    RISK AVERSION is merely a state of mind…in most people it is ingrained and can never change, but in some it can…

    Being risk adverse is equivalent to being like “most people”…If you want to be successful and rise above the rest, you cannot be like “most people”…you have to be willing to take risks!


    Posted by WBeamen | May 21, 2009, 11:04 am
  3. Great post! I’ll subscribe right now wth my feedreader software!

    Posted by KattyBlackyard | June 15, 2009, 12:15 pm
  4. No risk… reward!!!!!

    Posted by By any means necessary | June 28, 2011, 2:40 pm

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