There are a lot of definitions for risk, all of which seem to point to the potential for loss rather than the expectations of gains.
Back in the day, the idea that memorization was the key to being smart, the ability to summon a phrase from Whitman or Shakespeare, or a definition or as someone who attended parochial schools, each line of the Baltimore catechism. Ironically, the effort was designed to make us more than just simply smart; it would make us eloquent. People who had no idea that these facts were drilled into our young minds, in the days when a little corporal punishment was accepted, even encouraged, found us to be, at least to the average person, smart.
So today on the Financial Impact Factor Radio show, we have a new segment called Elocution Corner. This is where we try and sift through what we know and try, sometimes even succeed, at coming up with a memorable, or should I say memorizable explanation for words and phrases we throw about – as if we knew what they meant.
Today’s word: risk. Now I’m putting my cohosts on the spot for good reason: I wanted to hear an off-the-top-of-their-heads answer to the question, something they summon up the minute they hear the word. And they had some excellent insights into the world of risk as small business owners.
For me risk means reward. It isn’t a “versus” conversation even though it probably should be. There is no reward unless there is some risk. Would the empires of pre-Roman times ever have existed had someone decided that food tasted just fine without spices? Would the Vikings have done what they did if the goal was a three hour tour? Would our ancestors have dropped out of the trees, onto the savannahs and in the process, begun the process of living from the ripe old age of 25 to the eventually find a hundred thousand years later we are outliving our money? Did the first quest for spices, new lands, food have someone weigh the risks first?
To me, risk is potential. But I am an optimist. Now that doesn’t mean I don’t weigh the outcomes. People who don’t weigh those outcomes will cross a street based on what they expect to happen, not the chance you might get hit by a car trying to get to the other side.
But some people will stand there and wonder if they should cross, why they should cross, will the outcome be everything I wanted and will I be happier, more enriched if I did.
Spend some time searching around the web and you will find all sorts of folks weighing in on the topic. Here are some of the random definitions I found:
Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
Economic risks can be manifested in lower incomes or higher expenditures than expected.
Risks in personal health may be reduced by primary prevention actions that decrease early causes of illness or by secondary prevention actions after a person has clearly measured clinical signs or symptoms recognized as risk factors.
Insurance is a risk treatment option which involves risk sharing. It can be considered as a form of contingent capital and is akin to purchasing an Option (finance) in which the buyer pays a small premium to be protected from a potential large loss.
In finance, risk is the probability that an investment’s actual return will be different than expected.
This includes the possibility of losing some or all of the original investment. In a view advocated by Aswath Damodaran, a Professor of Finance at the Stern School of Business at New York University who admits the risk is in every human endeavor and suggests that risk includes not only “downside risk” but also “upside risk” (returns that exceed expectations).
Form the book The Gift of Fear, Gavin de Becker security specialist argues that: “True fear is a gift. It is a survival signal that sounds only in the presence of danger. Yet unwarranted fear has assumed a power over us that it holds over no other creature on Earth. It need not be this way.”
So on today’s Financial Impact factor with Paul Petillo, Dave Kittredge and Dave Ng, we addressed risk. A good listen for small business owners, those thinking about starting a small business and investors.
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