Hi Jonathan,
One of the interesting things of talking about investing(or any other important issue) is that it can expose fallacies that many people take for gospel truth. Your comment below is an example of such a fallacy.
So clearly, it's a matter or risk vs reward. Classical economics holds that profit is the reward for taking risk. AIM helps us manage that risk -- a much-overlooked point in my opinion in these discussions.
The assumption that profit is the reward for taking risk is such a fallacy, yet the entire financial community that is promoting the public to participate in the stock market uses this blatant lie to get people to act on their need to make it big...I bring Jim Jones(Guyana Massacre) into the picture: With lies he hoodwinked people to their deaths. These people were victim of not knowing the facts behind the lie.
The ultimate reward of risk is loss! If you do not believe it go to the casino and take some long runs on investing money on the Roulette Wheel.
The Biggest Lie in the investment world is called the Risk Pyramid, which promises with a Jim Jones-like falsehood hidden from view that investors will make the biggest profits when they take the biggest risks. How ludicrous!
Only uninformed suckers fall for an idiotic proposition...they fall for it because they know nothing about causality and believe the lies that are spun for them by crooks so these people will put up their savings for highly risky schemes...most of which will fail...because they were highly risky, or fraudulent ventures.
The truth of the matter is that risky schemes (read investments) fail because of their inherent risk. The ENRON example serves perfectly to illustrate the utter fallacy of the "Classical Investment Lie" of Risk Taking: At some point in time the fundamentals of ENRON were such that the company was beyond salvation. According to the Risk Pyramid it would have been a perfect time to invest in ENRON at the very moment it became known that it could not be saved: The high Risk would certainly guarantee high profits...according to the Risk Prophets!
Jonathan, come off it and "smell the coffee"...I can't figure this one out but it sounds good. Maybe coffee is the ultimate drug that makes people see the facts of life as they are?
Successful investing is achieved precisely by Risk Avoidance...not by investing in high-risk situations.
Another example: Jonathan, would you step into an airplane knowing that it had not been maintained for 5 years, knowing that the pilot was as drunk as a skunk and that he had to be carried on a stretcher onto the plane? I think you will not. You would think it might be a bit too risky.
Planes that are well maintained, and are flown by sober skilful pilots, as a rule do not crash. Only unknown risk factors that enter into this safe situation may cause a crash.
With investing it is no different. Investments that are inherently safe will perform well. Investments that are inherently risky will fail on the average and investors will lose their money, on the average. High-risk ventures will fail more often than low risk ventures.
That's the way it is!
The biggest long-term winners in the world are not winners because they exposed their money to high risk but because they shielded it from risk: they invested it in the ventures for which the risk was the lowest of several choices.
The only aspect that enters into this argument that explains why the Risk Fallacy stubbornly remains alive and well is that the general public cannot see under the covers to figure out how it is done....I mean they have no idea what risk actually means. They see successful winners that apparently risk their money and these winners are seen as gamblers. Presto! In order to be successful you should risk your money...so the gospel goes.
Lets drink more coffee. Let's bury that damn Risk Pyramid
Conrad
AI
