Risk fills the gap between your plan and the relentless power of opportunity, accident, luck and misinformation. When you plan for the future, it's on your shoulder and whispers, "Ha-ha-ha, that's funny! "
Here are some other things you should know.
People have an amazing ability to ignore the risks that threaten their livelihoods. This is dangerous, because in a certain field, people who should be the most experienced experts may be the least able to objectively evaluate their industry.
Risk has a lot to do with culture. Europeans and Canadians are usually cautious about the stock market. For Americans, it's a pastime. The French prefer raw milk. Americans are warned not to do so. Canadians are forbidden to enter. Europeans fear nuclear radiation. Americans don't care. Crossing an international airport, you will see one person wearing a mask and the other one letting the child climb on the floor. Everyone wants to believe that they think objectively, but most of the time you just reflect the cultural norms of your birthplace.
Success is an undervalued risk. Jason Zweig once wrote, "The right enemy is to keep the right enemy - partly because it makes you overconfident, and more importantly, it makes you forget how the world works."
The most risky fuels are debt, overconfidence, impatience, lack of choice and government subsidies.
Its greatest enemies are modesty, error margins and government subsidies.
Nothing in the world can reduce risk more than that. Risk does not care about your political views or morals. It doesn't care what you think about the market or what you learn in school. This is a man who kills indiscriminately and is also a master of humility.
Pretend to be your best friend. It tells you that you did the right thing, made the right decision, and then gave up on you, making your life miserable.
You can create risk by trying to eliminate it. Adriaan de Groot, a Dutch psychologist, points out that amateur chess players drive themselves crazy when calculating perfect moves, while chess masters look for a fairly good move in a broader strategy. In many areas, the smartest people don't have the most advanced models. They have the wisest rule of thumb.
Risks arise from neglect and contempt. The more you point at it and laugh, the stronger and more dangerous it will be.
We are not good at communicating risks. Nobody wants to hear that there is a 20% chance of a recession next year; they want to buy or sell. No one wants to know the prevalence of false positives; they want to know if they have cancer. Communicating something that works in probability under certain circumstances can make us more dumb.
The more familiar we are with something, the less risky it is. But the opposite is often true. Car accidents rarely make news, but they kill 32,000 Americans every year. Deaths from terrorism, hydraulic fracturing, shark attacks and swine flu are relatively few, but occupy the top spot in the slightest incidents.
The more the media talk about risk, the less risk it is. If something becomes the headline news, people are already preparing how to deal with it and predict its negative impact, which is very helpful to reduce risk.
Risk has two parts: how serious the risk is and how long it lasts. In terms of investment, too much attention has been paid to the former and not enough to the latter. The 30% crash that rebounded in a year or two may not be a big problem. But higher-than-average fees that have not been checked for decades can be devastating.
Learn how to manage risk, take the right amount and deal with it when it wants to fight you, it can be your best friend. It is the seed of opportunity, and progress must be made in almost every field.
Do yourself a favor and learn about risks through others. Others screwed everything up. Learn from their mistakes, not solve them in a difficult way.