Their Risks are Our Opportunities
- Joshua M Brown
- January 17th, 2013
The world is a risky place and the financial markets seek to reflect those risks every day.
It is not until you begin to understand the nature of risk that you learn how fantastic it is as an opportunity creator.
When most people consider investing risk, they focus on how much they can lose in a given situation - and understandably so. This is perfectly natural and healthy.
But not every risk inevitably manifests itself. Many (most?) of these risks fade away, making room for new ones. My partner Michael quipped the other day that "Over the past hundred years there's always been a damn good reason to be 100% in cash." He is smarter than he thinks he is.
And often times, the risky event that everyone sees coming - the breakup of the Euro Zone, the hard landing in China - turns out to be the least likely to occur. And the most profitable to bet against.
This is not to say that bad things don't occur - they do and will. But we often find that the fallout from said "bad things" is less than or different than what we'd spent so much time panicking about.
The next crisis is coming. The seed has already been planted in some remote corner of the financial realm.
That seed is germinating deep beneath an obscuring layer of thick, black soil.
It will sprout and be ignored someday soon, breaking just above the surface while the people walk by obliviously.
Then it will be noticed and denied, dismissed as unimportant.
Then it will shoot skyward, its dense canopy blocking out the sun.
Then we will all acknowledge it as being the major risk - we will become convinced that it will get much worse and we will all be doomed.
And in that moment, the risks of that crisis will have become too widely acknowledged to pose any actual danger. And just as always, the arrival of this new crisis will have opened up a massive opportunity for those who've kept their heads.
This process will play out repeatedly for the rest of your life. Learn to love it.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.