Comments on: The Psychology of Risk http://cfi-blog.org/2012/06/27/the-psychology-of-risk/ Fri, 04 Oct 2013 15:39:41 +0000 hourly 1 http://wordpress.com/ By: Ryan Celenza http://cfi-blog.org/2012/06/27/the-psychology-of-risk/#comment-5217 Tue, 24 Jul 2012 07:10:07 +0000 http://cfi-blog.org/?p=7145#comment-5217 Psychology is a very interesting subject. When i was younger i really wanted to be a psychologist. I also admire Sigmund Freud. ““.`

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]]> By: John Gitau http://cfi-blog.org/2012/06/27/the-psychology-of-risk/#comment-4731 Thu, 28 Jun 2012 08:49:33 +0000 http://cfi-blog.org/?p=7145#comment-4731 Human greed aside, there is need to distinguish risk on original capital from risk on income recapitalized. And the secret lies on payback. If an investor starts a business with $10 million and the business does very well as to payback the capital in two years, it means that any more income generated from residue capital represents infinite return( what is the denominator?). Subsequent incomes recapitalized might as well get lost and we can’t talk about risk per se not unless we want to be involved in business semantics. Risk on income recapitalized is not the same risk experienced by the original capital. Capital, as a denominator cannot intrinsically be held as a perpetuity ( though mathematically it is a constant as a denominator). JP Morgan should be able to say, hey world, we didn’t lose Capital. We lost income recapitalized, which by the time it was lost, we were enjoying an infinite return on investment. We shouldn’t roast a guy who lost the original capital the same way we roast a guy who has made the original capital back a thousand times over, not unless the human race is getting out of its mind. It is prudent to take massive risk with monies which have no cost. It is great risk that should be embraced. Shareholders, lets give the guys some breathing space. They have made you people so much money, so many times over your original capital and if they were taking risk, it is with an intention of making you much more money. In any case, in business, there are so many factors to balance that failure in one is not because of recklessness.

There are no experts in risk management, only more informed and exposed people. Didn’t JP Morgan have risk experts? They had. But every expert gets caught at one point and when that happens one is rendered an amateur.t Academicians must have something to write about, research about but whether it is about biology, psychology or philosophy, risks must be taken at all times as that is how the world evolves. So, the JP Morgan team, wake up, dust yourselves and move on, as you are special human beings who move where business cowards never want to venture as they fear failure like plague. And I am not being insensitive to the shareholders. There is need to take the rough with the smooth. Its not like your team sunk the Titanic!

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