It would be a risky situation if a person decides to drive a car without having undergone any form of training. It is the person's lack of knowledge and skill that makes the situation risky and not the car.
Similarly, if someone wants to invest (or trade) in a particular instrument but has not undergone any form of training, this person would be assuming a higher risk, and it has nothing to do with the instrument. It is often the lack of knowledge and skill that makes investing (and trading) risky and not the instrument itself.
What is risk in the context of investing?
Risk is a quantifiable entity.
People associate risk with uncertainty in outcome or expected return. A fixed deposit gives an expected return that is certain but not stocks.
People associate risk with volatility. Yes, this too can be risky for those who do not understand volatility and who fall folly to it, rather than taking advantage of it.
Risk in investing is thus generally defined as:
"The quantifiable likelihood (probability) of loss or less-than-expected returns."
The keyword here is uncertainty in outcome or expected returns.
How to be a good investor?
To be a good investor (and trader), one must first seek knowledge about the instrument that one is going to invest in (or to trade). It is similar to taking on a new job.
Risk comes from NOT knowing what you are doing.
Enter at your own risk.
Similarly, if someone wants to invest (or trade) in a particular instrument but has not undergone any form of training, this person would be assuming a higher risk, and it has nothing to do with the instrument. It is often the lack of knowledge and skill that makes investing (and trading) risky and not the instrument itself.
What is risk in the context of investing?
Risk is a quantifiable entity.
People associate risk with uncertainty in outcome or expected return. A fixed deposit gives an expected return that is certain but not stocks.
People associate risk with volatility. Yes, this too can be risky for those who do not understand volatility and who fall folly to it, rather than taking advantage of it.
Risk in investing is thus generally defined as:
"The quantifiable likelihood (probability) of loss or less-than-expected returns."
The keyword here is uncertainty in outcome or expected returns.
How to be a good investor?
To be a good investor (and trader), one must first seek knowledge about the instrument that one is going to invest in (or to trade). It is similar to taking on a new job.
- First, you must learn what your new role is all about, what kind of tools are there to help you in your everyday routines, what are the skill sets needed to perform your new job properly, etc.
- After that, once you have acquired the knowledge and learnt the skills required, you still need a period of constant practice to apply your newly acquired knowledge and hone your new skills.
- It is only after having practised for a sustained period of time before one is able to get the "feel" of the job and perhaps do it with ease and confidence.
Risk comes from NOT knowing what you are doing.
Enter at your own risk.
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