Chapter 10

Risk management and insurance

Hope for the best and prepare for the worst.

Proverb

Risk is the chance of danger or loss. In the context of investment, it’s the potential to lose money. In my experience, people are happy to take a risk, but they aren’t happy to take a loss. It sounds like a paradox, and in effect it is. The difference exists only in the mind of the investor. If an investment involves risk (and virtually all investments do), you can potentially lose money on it, but most people don’t think it will happen. Naturally, we are optimistic, and we don’t want to think that investing money into something will create a loss. Investing into a loss-making situation doesn’t make sense.

It’s for the same reason that people hang ...

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