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Why Risk is Integral Part of Invention, Growth and Wealth

Freaking Heck's picture




 

By: Chris at www.CapitalistExploits.at

"The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing. He may avoid suffering and sorrow, but he simply cannot learn and feel and change..."

Leo Buscaglia nailed it with the quote above. Ask any friends, colleagues or contacts you know who've enjoyed success about risk. If they're anything like me or my group of friends, they'll tell you that regretting risks NOT taken is higher on their list than regretting risks taken.

This is the polar opposite to what we hear from the mainstream. It seems we bipeds hate pain so much that we've allowed the bureaucrats to develop encyclopedic volumes of laws "protecting" us from it. Entire industries have been built around providing said protection.

Everywhere you look we're being told to "watch out," to "be careful," to be fearful. Risk is everywhere!

Terrorists with dark beards and funny accents lurk on street corners. Pedophiles, while stroking their mustaches, snickering to one another, peer through dark sunglasses at our kids in shopping malls, just waiting for Billy to stray. Billboards on freeways tell us to slow down or die in a bloody pool of mutilated meat. Children are warned by teachers against climbing trees, parents won't let their kids out in the sun between the hours of 10 AM and 2 PM (really?), and news channels terrorize us about Ebola.

We've become a society of wimps. I discussed previously how humans love stability, but that stability is largely a myth. Stability is the opposite of risk. Risk involves the unknown while stability involves the known.

Fortunately for us all there are groups of people who are driving forward with innovation, purpose, creating, building, living and breathing... they are called entrepreneurs. Try to scare them with real and imaginary risks? You may as well be trying to teach a lamp post how to code HTML... and thank the heavens for that.

Skydiving

Risk taking is required. That's a fact. We need it like we need air, food and water. Without it we'd all still be enjoying each others company sitting huddled in caves in Africa somewhere. Some of the world's most amazing, life-enhancing inventions would simply not exist: air travel, plumbing, the internal combustion engine, electricity, the microchip, quantum physics, vaccines, the string bikini... None of it.

Any individual, family, or even country cannot ignore the reality that invention, growth and wealth all have a twin sister, and that twin sister is RISK.

Let's for a moment consider this from a macro level. The hermit kingdom of North Korea is a great example. Not a lot happens there unless young Kim says so.

It's not that North Korea is afraid of risk on an individual level but certainly the moron running the place sees risk in allowing citizens to develop their own businesses, trade and interact with the world. A country can ignore this reality, but it cannot ignore the consequences of doing so.

So, if the anti-risk brigade aren't successful with dumbing down everyone, what exactly is it that drives risk taking behaviour?

The reason we will always have humans taking risk and moving us forward is due in no small part to dopamine. This is the stuff that sends a rush of euphoria through your body. Dopamine is why it feels awesome to drive fast, snowboard, water ski, bungy jump, sky dive... and even why it's so exciting to "create" things.

At the root of our animal brain sits the limbic system. This controls our emotions, our behaviour, our motivation and importantly our adrenaline flow. When we do something that our brain perceives as dangerous it dumps a load of dopamine into our body. Coincidentally this is exactly what happens when you "snort" cocaine! Not recommended by the way!

The first men out of that African cave would have had a dopamine rush. When Isaac Newton formulated his laws of motion he would have experienced injections of dopamine. When Jim Chanos was vindicated by revealing the frauds at WorldCom and Enron he no doubt would have experienced a dopamine rush.

In fact, identifying such an opportunity before wide spread vindication would likely have been a euphoric experience. Whoa, look at this baby! These guys are complete fraudsters. We have to short this one!

Here is the kicker. Those endorphins make you stronger, they make you more alert, they heighten your senses. This is why when something goes bump in the night your body stiffens. Your body senses danger and sends blood to your muscles. Sure your face goes white, but you're not trying to pick up a girl, you're getting ready to fight for your life.

Taking risk as an entrepreneur, as a trader or as an investor is critical. That risk has to be calculated and thought through. I'm not talking about gambling in Las Vegas - that's not taking risk, that's just plain stupid. There isn't an unknown risk to losing your money there. It's pretty much guaranteed.

All the best investors and traders I know are laser-focused on risk, and how to mitigate it.

In part 2 on Thursday I'll discuss what is arguably one of the best risk mitigation methods for anyone with even modest assets, and chances are you've NEVER heard of it.

- Chris

 

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Wed, 01/14/2015 - 12:28 | 5660272 JRobby
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As long as this author is not trying to say that the oligarch banksters are risking their own wealth and should be rewarded. The market is manipulated by them to their advantage.

They risk bank capital and when they lose, they expect a bailout from the serfs. And they got it.

Wed, 01/14/2015 - 11:45 | 5660069 Creepy A. Cracker
Creepy A. Cracker's picture

"The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing."

OK, then...  How did Dear Leader Obama become president? He risks nothing, does nothing (except destroy the country), and is something - a community agitator president.

Other than with politicians, I agree with the premise.

Wed, 01/14/2015 - 12:45 | 5660033 formerfedanalyst
formerfedanalyst's picture

 

36For what does it profit  a man to gain the whole world and forfeit his soul?

Wed, 01/14/2015 - 11:17 | 5659925 Katastrofenhausse
Katastrofenhausse's picture

A Brazillian jumping out of a plane (tail number starting with "PT" indicates Brazillian registry)

He must have been heavy into Shale oil , Natty and Bitcoin

Wed, 01/14/2015 - 12:44 | 5660350 Bear
Bear's picture

If he was into shale or BC's ... he wouldn't have a parachute

Wed, 01/14/2015 - 10:21 | 5659612 marathonman
marathonman's picture

When I put money in the stock market I feel an adrenaline rush and then extreme fear.  Guess I should go back to my cave.

Wed, 01/14/2015 - 10:11 | 5659566 medium giraffe
medium giraffe's picture

Yup, risk makes the world a better place. 

Especially during bail-ins. 

Wed, 01/14/2015 - 09:56 | 5659505 Aussiekiwi
Aussiekiwi's picture

'Terrorists with dark beards and funny accents lurk on street corners.' The ones near me make great Kebabs.

Beware of that Limbic system, it was designed for simpler times, hell, I bet it doesn't even have an app.

Wed, 01/14/2015 - 08:24 | 5659284 basho
basho's picture

" If they're anything like me or my group of friends, they'll tell you that regretting risks NOT taken is higher on their list than regretting risks taken. "

what a s*itty way to go through life. lol

"Life lived for tomorrow will always be just a day away from being realized. "

Wed, 01/14/2015 - 10:21 | 5659598 shovelhead
shovelhead's picture

"If you don't reach for something, your hands will stay empty."

-shovelhead- *

 

* somebody has probably gotten there first. It was too easy. Probably in a fortune cookie.

 

 

Wed, 01/14/2015 - 10:32 | 5659684 NoPension
NoPension's picture

I fantasize sometimes about what it was like, in the past days of our country, when putting food on the table and a roof depended on your skill and perseverance.
Don't get me wrong, I love a/ c and microwave ovens. I appreciate how fucking easy even the lowliest of us has it. ( and we do) You would have to work at it to starve in the US. I'm not talking about miss a meal, or go hungry. That's not starving. Clean water is almost universal and free for the taking. And food is considered a right if you fog a mirror.
To struggle in the US today is to not own the latest I- device.

Wed, 01/14/2015 - 13:04 | 5660460 KnuckleDragger-X
KnuckleDragger-X's picture

NoPension, it was a hard life somtimes but you understood the rules, nowadays nobody understands that hunger and chaos are hiding under a very thin venneer. I hope we don't go back to hard times but it becomes more likely every day, no matter what I may want.

Wed, 01/14/2015 - 07:57 | 5659246 nowhereman
nowhereman's picture

The underlying premise in this bullshit piece is that the "something" worth taking a "risk" for, is important and worth the risk.  The greedy actually believe this crap, and want to feel that their actions a worthwhile, and they want you to acknowledge their "accomplishment".  These are the assholes that believe that taking out Saddam or Kaddafi or Assad, or provoking Russia is worth the risk.  Let's create a muslim insurgency group to do our fighting in the middle east, it's worth the risk.

Dip Shit

Wed, 01/14/2015 - 10:20 | 5659609 NoPension
NoPension's picture

One has nothing to do with another. Edit that. They are both Human traits. Taking out Hussain and. Kadaffi are bloodlust. There may or may not have been valid or invalid political or military reasons, but who cares, we got to kill some bitches.
Leaders and innovators risk. They probably are not the kids who donned helmets and arm pads when riding their tricycles.
Lead, follow or get the fuck out of the way ( and keep you pie hole shut,too)
Life worth living involves some struggle. Things worth learning involve effort and sacrifice. Advancement requires risk and non- conformity.

All the other bullshit, football, DWTS, mainstream media is designed the keep the masses placated, and their natural human urges fulfilled. Those of US who realize this, and don't follow the script are perceived as very different and dangerous.

Wed, 01/14/2015 - 13:07 | 5660465 nowhereman
nowhereman's picture

Yeah right, and none of these so called "risk" takers profit from this.

I understood perfectly well what was being promoted here.  It is this type of thinking that is destroying our world.

It is the type of thinking Americans base their world view on, and it will lead to our demise. It's the type of thinking that allows Blankfien to believe he is doing god's work, and it allows Jamie Dimon to sleep at night.

Wake up people, the world is not a market to be exploited, including the people who reside in it.  Unless we fundamentally change our way of thinking we are doomed.

Wed, 01/14/2015 - 10:31 | 5659565 shovelhead
shovelhead's picture

You're not getting what he's saying at all.

Some people are naturally inclined to thinking: "Does this work" to "Can I make this work" to "I need money to make this work" and then mortgage their house or borrow to implement a plan which intails risk of failure and loss.

That is risk taking.

The rewards may have been a primary motivator in the initial phase, but the real pleasure and satisfaction is derived from the process of creating something from nothing.

Some people are builders and most others are nesters. I wouldn't be too suprised if it followed Pareto's 20/80 rule.

One clarification I have to make that's different from Chris: VC guys take risks to see something get built. Investors are just along for the ride. Educated gambling.

You're thinking about Govt. actions. Pfttt. It ain't their money and it ain't their comfort that will be affected when it goes tits up.

Not the same thing at all.

Wed, 01/14/2015 - 13:10 | 5660485 nowhereman
nowhereman's picture

Naturally inclined, like sociopaths.  WIll this make money? How many people would be made to suffer?  Is it worth the risk.  Sounds to me like GM, Monsanto, and the pharmaceutical industry

Wed, 01/14/2015 - 14:11 | 5660833 KnuckleDragger-X
KnuckleDragger-X's picture

the golden rules applies...he who has the gold, makes the rules....

Wed, 01/14/2015 - 13:01 | 5660442 KnuckleDragger-X
KnuckleDragger-X's picture

I started investing back in the 70's and from day one I understood that there were risks and that the risk varied with the reward and I got completely out of the market in 2012 when I could no longer figure the risk level. The market mafia and all their useful idiots in the media push all this BS while not only denying the risk but beittling anybody who notices the sky is blue. Don't play the game if you don't understand the rules and if you can't afford to lose, don't bet.

Wed, 01/14/2015 - 06:14 | 5659122 BovespaBroker
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bullish.

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