Saturday, September 06, 2014

Understanding Risk in Investing...


Infinite number of factors influence the future. This results in large entropy (more randomness), and the weak relationships between many possible outcome events. 



Hence, the future events cannot be predicted with any consistency.  

This brings me to my next point:

We should not see future as a fixed outcome and capable of being predicted. 
Rather, future should be viewed as a range of possibilities.  (hopefully on the basis of insight into their respective likelihood occurrences, as a probability distribution).



This uncertainty, as to which of the possibilities will occur, is the source of risk in investing. 
Risk means more things can happen than will happen.

Reverse of above is also true. Even though many things can happen, only one will.


For investing, there should be two main risks to consider:
1. Risk of permanent loss
2. And risk of falling short. 


Either one can be eliminated but not both. In other words, we should consider the risk of not taking enough risk.

Another risk to be aware of is FOMO risk:  risk that comes from excessive Fear Of Missing Out (FOMO).



Whereas Risk Control is mandatory, Risk Avoidance is not an appropriate goal. 
This is because of simple reason: risk avoidance usually goes hand-in-hand with return avoidance

Risk Avoidance <==> Return Avoidance

One should not expect to make money just for bearing risk. 
At the same time, we should not expect to make money without Bearing Risk.



In short, Move forward, but with caution.





Also Read my old post: Understanding Risk

Source: My understanding of OakTree's memo Risk Revisited.
Image Credits: iStockPhoto

Friday, April 04, 2014

Organizational Hierarchy...

There is so much a simple street photography image can tell you.

For instance:

Source: unknown; credits due
  • the trainee, usually the youngest guy, starts by cleaning the tools and equipment. Probably allowed to install and uninstall the minor parts too.
  • the regular mechanic who knows how to do stuff when told what to do. Most of the work is done by such people.
  • the expert, I think the guy squatting and smoking, provides diagnostic and knowledge expertise but do little of the actual work himself, unless required.
  • the owner or customer keeping an eye on the work(ers).

Bonus: Writing on the wall.  "yahan poster lagana mana hai"  (it's forbidden to put up posters here). Rarely followed.
These are like corporate policies, may or may not be directly related to employee daily tasks. 

Tuesday, April 01, 2014

On Managing People...

1. The best way to manage people, is to persuade them that you are good for their careers.
2. The only way to get people to believe that you are good for their careers is actually to be good for their careers.

Friday, March 21, 2014

Life...

Life..
  • is nothing what it seems...
  • Moving forward/progressing would happen no matter what direction you take..
  • is filled with obstacles that repeat over the course of your life, but looking at things differently each time lets you explore opportunities you might have missed..