Introduction
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As many investors can attest, risk does not even enter the mind during times of exuberance. If people took risk into their decision making, bubbles wouldn’t exist. Risk should always be top of mind during investing because not understanding it is how you lose money. Nobody goes into investing to lose money, so spending some time on risk is muy importante.
The thing about risk is that it's not a new discovery. Humans have taken risks since the beginning of our existence. The quantification of risk is a newer concept.
To combat risk, we all have tools in our arsenal. In the context of investing, proper analysis and a margin of safety are a start. Without utilising these tools, you'll be the one swimming naked when the tide goes out!
Risk-Taking Is Inherently Human
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Gambling is a good way of looking at risk. Merriam-Webster defines risk as "the practice of risking money or other stakes in a game or bet." The word risk or its permutations is present in all definitions. The reason gambling is a good way of looking at risk, is because it's been around a lot longer than woke bro who lost all his money using 100x leverage to go long on Bitcoin.
Picture this: it's 3500 BC. You finished a long day of work of hunting and gathering or wrestling a fish. Now it's time to kick back and get up to some debauchery with friends. You pull out a bag of Astragali (knucklebones of a quadruped) and get some friends to gather around.
I go over my 3 favorite ways to mitigate risk when I'm analysing a company and a little bit on why risk becomes an afterthought during bullish times.
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