Risk and the Weather
August 27th, 2009Recently, while meeting with a married couple who are prospective new clients, I asked them a question I always ask prospective new clients: ”How would you define risk?” Her first answer was driving on the freeway, which is a very good answer, which was followed up by another answer, which is the weather. What’s even better about the answers is that she had no background or experience with investments.
Weather. That’s good. People are always talking about the unpredictability, or uncertainty, of the weather. That’s how I hope investors think. Risk is uncertainty, and we can quantify uncertainty. Yes, not wanting to disappoint anyone, we did briefly discuss bell curves and standard deviation. Risk = uncertainty = standard deviation. No, it’s not a perfect analogy, but it’s the best industry and academics have found.
Living in Houston, I also liked the “driving on the freeway” description of risk. Driving on a Houston freeway, especially during rush hour, is an uncertain experience. It’s uncertain from both a safety standpoint and from a time required standpoint.
Although I often refer to Nobel Prize level tools and tactics, I do like to keep things, especially investment concepts, simple. We’re all more likely to remember and understand simple explanations. Besides, simple solutions usually work the best. That’s what we want: things that work the best.
Stay tuned.
Thanks,
Rod
9 Responses to “Risk and the Weather”
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Hey, Rod, I’d define risk as “the possibility of gain or loss inherent in an activity”. So, there’s risk in driving on the freeway, as well as in many, or perhaps most, other activities.
Health, Fitness — Darryl Pace
Fitness Product Review
Rod,
Simplicity is always the best!
Siomplicity is to reduce somethig to the extent that it can be more simpler.
John Ho
Numerology Expert Birthday Numeroscope
Numerology Expert Helps Understanding Personality for Better Influence & Persuasion
Rod,
[my typo corrected this time]
Simplicity is always the best!
Simplicity is to reduce somethig to the extent that it can’t be made more simpler.
John Ho
Numerology Expert Birthday Numeroscope
Numerology Expert Helps Understanding Personality for Better Influence & Persuasion
Hi Rod,
When I teach meditation, I often use the weather as a teaching tool. It is something we all understand. I think it is wise of you to keep things simple for your clients and leave the complex part for yourself. After all, that is what they are paying you for!
Anthony
What a great way of thinking about it
Nice and simple!
Great example of using an analogy as a teaching method. It makes since, especially in this economic storm.
Steve
Great metaphor and it helps to make sense of it.
Jen Battaglino
The Harwood Center
Hi Rod,
Indeed, having simple metaphors like that for defining risk is such a great way to be understandable. Our brains can PICTURE IT, SEE IT, and therefore grasp it and have an idea of what to do.
Happy Dating and Relationships,
April Braswell
Single Baby Boomer Dating Success Expert
Great question to ask, and great answers. Traffic and weather (particularly here in the UK) are great metaphors for risk.
Martin Wright
Impact, Poise, Presenting