How we Misunderstood Risk?

12 points to understand Risk and take better decisions.

A thread

Most people are confused about risk should we take it,avoid it,should we manage or quantify it.

What is risk? Why it is important to to understand its implications.
Lets dive in
1/12

I define risk as our probability of getting harmed financially, emotionally or physically due to life uncertainty/ randomness.

Its also our inability to meet our desired outcomes

2/12

Since human beings are not good at predicting or anticipating things our fear of unknown is what makes us avoid Risk.

Risk involves a certain degree of danger but our Anti-fragility towards it makes us stronger every time we deal with it.

3/12

3 Ways of dealing with Risk

Calculated risk -Earns constant or mediocre returns.

Risk averse-when people don't like to take risks and they're afraid of it.

Asymmetric risk-it's a huge risk with potentially high downside or upside these are non-consensus decisions.
4/12

People who take calculated risks like day traders and investors can make a living and & earn average returns than people who are Risk Averse.

5/12

Risk averse people generally tend to live their life in stagnation.

They don't want to take any type of risk but they forget that risk is inherent part of their lives.
6/12

Risk is the inherent nature of universe every move we make every action we take have some type of risk involved in it and it's all predicated on our inability to predict future.

7/12

People who take asymmetric risk open up a small window of opportunity to make exorbitant returns and might become next billionaires but it has a downside of complete ruin .
Those who take this type of risk can to go bankrupt too.

8/12

How to deal with the risk pointers ?

Understand yourself

Have clear goals

Quantify your risk

Have exit rules and stop losses

Never risked more than you have
Debts are riskier for this reason

9/12

The best thing about future is its cant be predicted but it can be planned.

Planning with risk management is somehow similar to predicting the future.

10/12

Risk and Volatility are two different concepts.

An asset can be risky but not volatile & a volatile asset can be less risky, do not confuse both.

Volatility is a short-term phenomena and growth is a long-term.

11/12

A growth of an asset depends on its long term fundamentals but volatility is driven by greed and short-term horizon of people.

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And checkout my other thread about NFTs

12/12 https://twitter.com/slaphacks/status/1377842384675872773