How Can You Eliminate Risk?

How can you eliminate risk altogether? Here’s a better question: Why even try?

In an article in Stocks, Futures, and Options Magazine, author Michael Covel recalled a quote he’d found beneficial since first hearing it at the 1989 University of Georgia’s commencement address. The speaker, Charles S. Sanford, Jr., said,

“In the conventional wisdom, risk is asymmetrical: It has only one side, the bad side. This conventional view of risk is shortsighted and often simply mistaken. Successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than a pitfall to be skirted. Such people understand that taking calculated risks is quite different from being rash. This view of risk is not only paradoxical – the first of several paradoxes I’m going to present to you today. This one might be encapsulated as follows: Playing it safe is dangerous. Far more often than you would realize. the real risk in life turns out to be the refusal to take a risk.”

Consider what happens when the economy slows. Everyone quits spending in a downturn because of the enhanced “risk” that accompanies challenging economic times. “Now is no time to be spending…” and “We sure don’t want to gamble in this environment…” seem to be the widespread reactions. In fact, this may be the exact time to spend.

It’s simple supply and demand. When the market pulls back, supply builds up. With more supply than demand, a buyer’s market develops. As the buyer, you should at least be able to pick up some bargains and, at best, you may be able to name your own terms! It’s almost like the marketplace is helping finance your future growth.

Not starting a business, not expanding a business, not making a sales call, not changing jobs, not getting additional education, not starting a new career, not trying a new hobby, or not asking that person you’re interested in for a date may indeed help you avoid “risk,” but it also guarantees that you won’t get to experience an exciting new set of circumstances. Is that really the “guarantee” you’re looking for?

Take a look at what “risks” you’ve been avoiding, then take another look at the potential payoffs. You may find that what you stand to gain from a calculated risk or two will be well worth it!

“Buying good companies on sale isn’t risky” – Warren Buffett