Doing Some Thinkin’ About Risk

I have been watching some MoneyTalk on ROB TV lately (you Canadians will know what this is). Although I find this show can be a bit biased towards mutual funds as the guests often come from the fund companies and are trying to convince us that we are all pretty much idiots and need to leave investing up to them, the “trained” professionals. However, one of the past guests made a comment that I thought was pretty good. I don’t actually have verbatim what he said, but it had to do with risk.

The premise of his comment was that it does not matter what you invest in, if you are not comfortable with the risk profile of that investment then you are most likely going to make a wrong decision somewhere down the line, whether it be selling too soon or selling not soon enough. He also said that if you are not comfortable going on a vacation because you are worried about your investments, then you are in the wrong investments – you are not comfortable with the risk you have taken on.

I agree with him – being able to go to bed at night and not worrying about the stocks that I hold is important. It allows me time to fully analyze the data on the investment when new information comes out and then making an informed decision.

I have been in the situation when I was not comfortable with the risk and I always ended up losing money. When I have been comfortable with the risk, more often than not I seem to make some money. The economics of that are hard to ignore.