Joseph Wang Financial - It Is Very Important To Distinguish Between Risk And Danger

In the world of the stock is a well known saying

, "the greater the risk greater profitability."

I think it can be interpreted literally make major mistakes.

First would be more proper to say "the greater the expected return greater risk" because at the time of the risk that higher profitability is not certain, but only a posbilidad.

But the most important in my opinion is the difference between controlled risk and danger.

The future is never known with 100% certainty (or stock or any other activity) and therefore it is reasonable to act on probabilities.

In the long run it usually gives better results is to opt for alterntiva that, besides being favorable to our interests, have a high percentage chance of becoming reality.

And I think that based on the probability of the most favorable scenario is the way to distinguish the controlled risk of danger.

When uncertainty about the future of solid companies with good track records and increases well above the average then you run a risk controlled. This is what happens in the stock cracks , for example. The fear of most investors make is to overestimate the negative factors and positive factors are ignored. In these situations it is most likely not meet the worst fears and investor fear and uncertainty to the average return, driving up stock prices.

However, when you invest in a company in losses, with too much debt, without a clear future plan, etc.. the risk becomes dangerous because in these cases it is likely that the company take a radical turn and become a great company. It can happen, and in fact has happened more than once a company is virtually deshauciada reestucture and provide spectacular returns to those who invested in it when it seemed doomed to failure but such investments are risky but not dangerous.

You could say that also at higher risk higher expected return. But the difference between risk and danger, as I said before, is the probability of winning.

If an investor invests in good companies with increasing uncertainty in the market is likely in the long run the most risk-taking to provide the desired profitability.

However, if the shape is reversed sitemtica dangerous investment is very likely that most of them results in losses and the final result throughout the life of the inverter is clearly negative.

by: Joseph Wang

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