Risk is Opportunity (SOA)

Essay. An investment is just and only the purchase of risk and the risk is that we might not get our money back or, which is the same thing, a non-negative real rate of return.

Courtesy: Society of Actuaries

The Society of Actuaries also takes that point of view, although they phrase it more simply and deferentially as “risk is opportunity” and, therefore, that an investment is the purchase of risk which is the purchase of opportunity. Indeed, that is what we would hope for.

Foundations of Economic Analysis, 1948, by Paul A. Samuelson

However, somewhere between grade-school and Wharton, “risk” was re-defined in the common weal by the economists as “volatility” and that point of view has no traction at all and has intimidated a generation of would-be “investors” with the result that most of our money (in pension funds and savings) is managed on the wire by salespersons and meaningless policies of diversification against a market benchmark, such as an Index, in the retail secondary market, which is just that – retail and secondary, like a grocery store where anybody can shop.

But without guarantees, warranties, or proof of suitability for the investor. Those we need to provide for ourselves.

Courtesy: Twitter Incorporated

On the other hand, the investors are now queuing up to buy the Twitter IPO, which they believe is coming, and it is said that there is about $1 billion riding on 20% of the ownership equity, for which the investors are expecting an “exponential return” before it hits the grocery store (Reuters, October 3, 2013, Insight: Little-known Hollywood investor poised to score with Twitter IPO).

But, we’re not going to be there because the party is by invitation only and we can wait for the outcome (N)@RiskWerk sometime down the road.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.