Tuesday, April 07, 2009

Risk and Uncertainity and impact on investment

Risk is a quantifiable probability that your investment will go bad. Uncertainty is an unquantifiable probability that your investment may make or loose your money. When you know the risk, you’ll adjust your investment adjustment strategy appropriately. You'll be able to take long and short positions as appropriate to the investment instrument.

Where there is uncertainty or ignorance about, the investment strategy takes the option of a short in the dark or following somebody's opinion. Somebody’s opinion could be an expert or a gossip. And sometimes the two are indistinguishable. You’ll in turn impart the same to another who regards you as an expert and so forth until you get herd mentality. Which is good in a bullish market as the positive sentiment ("aka animal spirits") push investments upwards. And destructive in a bearish market as a negative feel devours itself.

Bottomline: your knowledge of your risk appetite, understanding and quantification of risk allied with certainty in SWOT analysis will improve your success in equity investment and investment generally.


coldtusker said...

Mon ami... lose not loose!

coldtusker said...

The problem with self-assessment of risk is that we tend to under-estimate risk or assign it a lower weighting. I am guilty of that.

I was oh so positive about the 2007 elections... rather peaceful... etc. Then it all went to hell in a hand-basket.

Yet, I still 'believed' Kenyans will be mature post-PEV bit no...

So I have started adding a political risk factor to African stockmarkets.

coldtusker said...

BTW, at least on the 'land' question, I believe there is little security in Kenya. Maybe Africa at large. The risks of 'owning' land are too high.

Fake title deeds, forced occupation by squatters, forced eviction.

East African Portland Cement Co... they have some problems with title deeds. And they have been around for years!!!

I need to re-think the risk that African shares & stockmarkets have.

MainaT said...

CT-I am ngenyan, what do you expect? Risk, is one of those things. Unless you measure it unemotionally, you will surely miss it by a mile. 2007 was a case in point. I was aware that it'd be a dicey period, and planned to buy some low stocks which I did. On the other hand I messed up late last yr buying up some RBS because I trusted its CEO.
Land, buy urban.