What is your risk profile?

[AMR]

A quick poll to see who are the risk-takers and who is risk-intolerant.

I myself would have been the riskiest of risk takers until a short while back when I learnt about expectancy and money management the hard way:o. Now I use a small stop loss and don't have the urge to check my positions every 10 minutes , and trade smaller markets like CFD indices.

[axion]

I'd say educated gambles. Like doubling down on 11.

Small amount of capital, which if I lose I'm not going to be completely cut up about. I'm also relatively young (19), so losing all my money isn't the end of the world.

Although I'm starting to read a bit about position sizing and such, but I'm still quite a bit away from having enough capital to make it worth while.

[Halebop]

Risk is a strange beast. Identifying risk is in the eye of the beholder. But unfortunately, seen or not, it soon makes itself known.

From my perspective CFD's are inherently risky - even if the instrument is DMA you don't really own an underlying security yet you simultaneously exaggerate your exposure to debt and volatility. Finally, you must be a more active trader which requires timing skills. None of this reads like a low risk activity.

Risk management is a misnomer. There are only two risks - the ones we aren't exposed to through avoidance and the ones we don't understand through participation (known risks that are discounted either aren't risks or aren't fully understood). Only one of these choices leaves an investor as a patsy at the poker table. An obvious recent example of risk is the Opes Prime collapse. Investors thought they were taking "market" risks when their biggest risk was the "market maker". This is typical of risk - you just don't see it coming and it confounds your "risk management".

So its not a matter of weighing risk. If risk could be emphatically calculated insurance companies would be really good at it. They are not. What the better ones are good at is saying no when the risk is high or the price is too low. ...and better still no when the risk is simply difficult to quantify.

Kiwis will be aware of the Icepack building fire in Hamilton. Aside from tragic loss of a fireman's life, the loss of improvements, plant and stock was large. Much of the losses were insured but the building insurance is the interesting part. To many underwriters the building is uninsurable - cool stores are counter-intuitively less than ideal physical risks and this one had no suitable water source with which to fight a fire - a big red flag when insuring big buildings. The underwriter thought they were taking a calculated risk for a somewhat higher premium but in fact were just taking an undisciplined and ultimately foolish risk (rumour has it they had the business for just days - ouch). The story goes back further though. The original developers got a somewhat cheaper investment for much the same reason - cheaper outlying land with no water. There was a hidden cost to that transaction that took years to show itself. While the replaced stock sits in other cool stores what do you think Icepack is thinking of their business risk now? A few months ago they probably thought they had it covered with their business interruption insurance but it won't cover them for permanent loss of custom. Suspect Fonterra and others will also be taking a harder look at suppliers and those little things like sprinkler systems and water supply. This is all part of the risk they collectively under-rated but none the less had covered under meticulously documented risk management and catastrophe recovery plans.
The lesson in short, risk cannot be managed. Only avoided. ...And even then you have to at least a little canny to know when to walk away.

Because I trade, invest in equities and private businesses and dine at dubious looking ethnic eateries, my risk profile would be in the upper half, not withstanding robust risk avoidance practices. I doubt anyone characterising themselves as a trader could be lower. The bad news for more sedate investors is that their actual risk profile will be no better if the quality of their decision making lacks proper criteria and benchmarks. Simple Beta / volatility tolerance tells me a share investor has to be in the upper half of risk takers.

[FarmerGeorge]

Interesting position Halebop, I tend to agree.
One smart guy I talked to recently, who has the privilege of managing many billions of other peoples money, likened risk to energy. You can never get rid of it completely you can only change it into another form of risk. The key, it seems, to running a hedge fund (or investment portfolio) is to convert all risk into a type which you can understand and quantify. The definitions may be a little different from you Halebop but I think the principle is the same. It is the uncertain probability of loss which you are really trying to avoid.
As for me I'm well in the higher bounds of risk tolerance, if I feel I will be appropriately rewarded for taking on that risk. Look at the 18 month history of PDZ and PDZO's charts to give an idea of what I mean

[Year of the Tiger]

From my point of view, it is pretty hard to work out my risk profile because there are so many issues that need to be considered.

First point: I try to adopt the attitude that I invest in shares only with money that I would be prepared to lose if the the bum fell out of it, but that really is a load of crap, I would be pretty gutted to lose any amount of money regardless of how much and how often.

Second point: I still have a fairly limited knowledge about FA / TA and more often just read up about a company to gain as much knowledge as I can. If I get a warm fuzzy about the company at the end of the day, then I'll invest in some shares.

Third point: I still haven't organised a hard and fast exit strategy that I follow religiously, in fact usually when that warm fuzzy in point 2 becomes a cold reality, I usually head for the hills. Sadly, that doesn't happen soon enough on most occasions so end up reducing my profits at times, by significant sums.

So from all of the points above, I would say that my risk is fairly high. Now from the opposite angle.

Point 1: I don't have large sums to invest so I guess the lesser the capital, the lesser the risk.

Point 2: I am currently almost out of the market (except for a couple of favourties), and chose to reduce mortgage prior to Xmas.

Point 3: I am becoming expert at sitting on my hands during this current up and down cycle of the market. I know I have definitely lost out on some good opportunities however, at least I sleep well at night.

So in summary, in some respects, I feel that I take a rather risky approach to investing, however, in other ways, my risk profile is extremely low. so I voted just slightly above the midway point and I think that is a pretty fair assessment.

Cheers,
YOTT

[shasta]

I'd say educated gambles. Like doubling down on 11.

Small amount of capital, which if I lose I'm not going to be completely cut up about. I'm also relatively young (19), so losing all my money isn't the end of the world.

Although I'm starting to read a bit about position sizing and such, but I'm still quite a bit away from having enough capital to make it worth while.

I selected "8", my portfolio would be considered high risk to others...

I see things a little different, but then again i back my research!

Axion - You coming along to the Wellington ST meeting?

[STRAT]

My risk profile?

Somewhere between a danger unto myself and down right fool hardy

[AMR]

Well I havn't thought of it that way before but I can understand what you mean, as in don't get burnt like Jim Rogers or those Opes prime clients.

I was actually talking more in terms of drawdown and what sort of levels people are comfortable with actually. A CFD indice (which I am only playing with at the moment) gives a maximum loss of 1% with my sort of stops. Forex gives a maximum loss of 3% but has a much much better Risk:Reward ratio.

[Grimy]

From my point of view, it is pretty hard to work out my risk profile because there are so many issues that need to be considered.

First point: I try to adopt the attitude that I invest in shares only with money that I would be prepared to lose if the the bum fell out of it, but that really is a load of crap, I would be pretty gutted to lose any amount of money regardless of how much and how often.

I'm with you!!

[Belumat1]

I choose 6 because it's true that the gain has no limits (no end, you can have 1,000 % or more) but on the other hand you can LOSE maximum 100%.

10% a year and you double your account in 8 years .......
what if I can gain 15% a year ?

Thank you
Bye