Thinking about risk and investment recently. People often confuse business as not being an investment, it is. It is an investment in means toward an end. Therefore investment can and often is a business, especially if it involves options. However...
Something I’ve learned from investing and trading options is that you should have a lot of cash. This is true for most successful businesses as well. You need to cover your back. However, many confuse insurance or contracts as protection against large risks and believe...
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That their business or market is somehow separated from the broader market. Businessmen can be excellent at managing specific risk but fail to understand or account for systemic risks. Systemic risks are where we often see black swans that hurt Main Street.
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If you own a business that is supposedly separated from the stock market, know that all correlations go to 1 when you least can afford them to. If you are operating an e-commerce business on entirely borrowed funds, particularly from individuals rather than banks, and even...
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If you own insurance on your inventory and have back up plans for the employees and information systems you use, you are still exposed to systemic risks. If a large and unpredictable systemic risk appears, no amount of insurance or plans can save you from...
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Your investors demanding their money back and hiring a lawyer to fight the contract. The only thing that can save you is cash or cash equivalent to sustain you through tough periods. This is exacerbated by illiquid assets under management like equipment or real estate.
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I am only involved in the option trading world and the truck parts and maintenance industry and this seems to be a solid risk management practice throughout the business world. You might argue that that money could be engaged in income earning activities, however...
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You would be ignoring the opportunity cost of having cash available to save your ass or invest in the amazing opportunities available when the blood is in the streets.
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End of conversation
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