Risk-Reward
A short post i wrote on twitter, for those of you who aren’t on that platform.
It’s a bit controversial but I will say it.
When one is investing their own money, most (not all) investors can afford to throw caution to the winds and jump into risk taking behaviour seeking rewards. In bull markets such risk seeking behaviour is rewarded. Even if such behaviour goes wrong, for an individual investor, there is no onus to explain it to anyone and such mistakes die quietly.
People who manage other people’s money have to manage risk first and then worry about returns. The expectation is to manage risk with foresight and generate highest possible returns with hindsight.
Buying on June 4 is now considered a masterstroke. Retail investors have outsmarted institutions. The question is knowing what one knew on June 4 at 3 pm, what was the risk-reward on that day?
For those who bought there will be no introspection because it turned out to be right. Irrespective of the outcome it’s a question that needs to be introspected on if one needs to survive in the markets for the long term.
Taking blind risk is very easy and needs no skills. But there is a time to take risks and there is a time to cut risk. Often the behaviour is opposite.
Understanding risk-reward is the real game of the stock markets.