Hedge Risk

Hedge Risk

When going into business, you are essentially reviewing and strategizing your options and then placing your bets. By placing more high quality bets, you are hedging your risk and limiting your potential losses.

Diversification of your investments is a tried and true way to protect yourself. On the other hand, it limits your upside potential, too, since, by definition, all of your money will not be exclusively in the most profitable investment; instead, it will be hedged (or balanced) across a number of deals for safety’s sake. In theory, this is one reason why mutual funds might be safer than individual securities but will also have a smaller upside potential. Conceptually, the more volatile an asset is, the greater its upside.

You can’t wait for a risk-free deal to invest in because there is none! And if there were, it would only promise a miniscule return, no better than a bond.

Not betting consistently on the best deals you can find, and instead, trying to time your market entries and exits at the expense of fundamental research and conservative investing, is unlikely to work unless you are extremely gifted.

Nothing is guaranteed for the market leaders or their followers. As long as you know what you are doing, taking risks can actually be less dangerous than not taking them. Playing it safe instead of proactively conducting business might not be so safe at all.

Hedging bets is the same as hedging risks. While any one risk might be too risky, hedging across many smaller deals can create balance, and hopefully, less risk, if each bet is educated.

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