When risk can be good

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Risk – should it be a choice or a fate?

Julia Warrander and Russell Waite, of Affinity Private Wealth, reply:

MENTION the word risk and the chances are our first thoughts are anything but positive. However, could we live in a world without risk, and would it be desirable to do so? Each of us take numerous risks every single day. When we cross the road, cycle to work, hurry downstairs, voice an opinion, take a job, or lean in for that kiss, each of these acts contain an essential element of risk.

The word risk is said to have come to the fore during the late Middle Ages, when enterprising merchants and mariners from all over Europe were forsaking the known for the unknown. By setting sail across the massive expanse of uncharted oceans in the hope of finding fame and fortune, they accepted danger as a given, but the opportunity to secure wealth beyond their wildest dreams was too much a reward to ignore. In this context, it is noteworthy, the word for risk in Chinese is constructed from two symbols: danger and opportunity.

Dealing with risk – managing it and harnessing it according to clients’ needs – is at the heart of what an investment manager does. In our world, risk per se is neither good nor bad; rather it is an expression of probability – the likelihood of a particular outcome, positive or negative. By definition, the professional investor takes risks in financial markets every day – to buy, to sell or to hold. The successful investment manager is a skilled risk taker, someone who – against an ever-present backdrop of risk – makes more good decisions than bad.

From this perspective, risk should always be a choice, not a fate. The natural urge for safety can be good but, if left unchecked, it results in the neutral idea of uncertainty morphing into the negative one of hazard. Moreover, in a time where it could be argued society has become obsessed by safety, hyper-caution could result in outcomes as undesirable as reckless behaviour.

Whisper it quietly, but – much like greed – risk can be good.

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