Risk management is one of most important aspect in investment. But most of the time people are trying to manage too much for the uncertainities. Don’t risk what you have to get for what you don’t need. Let’s try to understand with real life example.
Take an extreme case, when a person is managing too much for risk. A person decided to take umbrella 365 days a year no matter if it is raining or not. He thinks it is not inconvenient to carry umbrella all the time. Moreover, He also wants to keep it simple and not to worry about whether it is raining or not. This looks odd but some of the people are doing exactly the same. There are other types of people who react differently. Now there are some intelligent investors who are carrying umbrella based on the weather prediction of that day. They are normally informed investors. Even sometimes if it does not rain inspite of prediction, they know that weather is unpredictable and cannot be right all the time. Now some people are confused and try to create their own predictions and not sure about anything. They are confused as sometime they have umbrella but it does not rain. Sometime they don’t have umbrella and it rains heavily. They take tips about the rain from the friend who knows nothing about the weather. Some contrarian people do opposite of other people and are quite successful in that.
Some people take this step to a spiritual level. They enjoy rain and never carry umbrella. They don’t wear expensive suits and hence don’t worry about their clothes. If it does not rain, it is well and good. But if it rains they don’t run for shelter and enjoy every drop of rain. For others they may be insane but they consider themselves as mystic.
In Summary, one has to take a judgement call regarding the safety from the uncertainities of life. The fear is always created by the market to sell insurance or umbrellas. Companies are even selling funeral insurances. Is it really worth ? So it is important to think beyond the fear before taking any decision.
