Sunday, March 17, 2013

Managing risk and uncertainty

Michael Lee asked:
Mr Tan, wad do you mean by taking risk ? Wad kind of risk are you referring to?

Risk means uncertainty. We have to accept some risk and have a sensible approach to manage risk. We cannot eliminate all risk and pay a lot of money to eliminate risk totally.

There is a 1 in 5 million chance of being killed on the road each day. One person die in a road accident. We accept this risk, and don't stay at home ...

There is a risk of being sued for defamation, especially by rich and powerful people. if we express our views. We still give our views and accept the risk.

There is a risk of being sued for copyright infringement if I copy an image from the internet. I accept the risk and see if anyone make a claim. So far, none.

If we invest in shares, there is a risk that it can go up or come down. We accept the risk. We don't just ask for "guarantee". People who want guarantee, end up losing all their money when they were misled. This happened with the mini-bond type of investments.

There is a risk of losing your baggage or missing your flight when you travel. You can accept the risk and avoid paying $30 for each trip. It is not worth buying insurance for small losses.

If you want to buy insurance, make sure you pay a fair price. If the insurance should cost $200, don't pay $2,000, just because the agent exaggerate the likelihood of the loss.

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