Conventional Wisdom II

2) Equity is risky

The risk is always there. The most dangerous risk is not outline externally, but internally – that’s when you are ignorant.

People been brain-washed by their parents, peers, media….etc. Often, people telling you who is bankrupt because of his failure in equity investment while the media especially those producing drama or movie features a character jump down to the street after he lost all his investment in equity market. There is no surprise for such scene – after all, if the story is not as hot as this, will the film attracts people to pour out money and buy a ticket to watch it? This is the perception we got about equity market – IT’S VERY RISKY.

The perception we got sometimes does not represent the reality. As far as Great Depression 1929, there were no people lining up to conduct suicide because of the crash, though there were many people laid off because of high unemployment rate.

Another cause people have a perception of equity market is risky is because they hear or see the equities they bought plummet like a falling stone. The problem underlying here is their attitude rather than the equity is risky. When you act like a person in Las Vegas betting for his fortune in a casino, that’s buying something that you do not understand or even care to understand, this would put you in a risky position – no matter what you invest, being it equity, commodities, real estate and so forth.

If you really do your homework – studying an equity that you intend to invest deeply, I see no reason why equity is a risky investment. Of course, this also depends on your firm character, knowledge and experience as well. In every market, there is no lack of predators waiting for the innocent and ignorant lambs to become their dishes. By investing in the largest, well established bank-backed funds does not mean it will give you a superb return. The ugly part in fund managing industry is sometimes your interest does not align with their interest. If this happens, whose interest your fund managers will protect? You? Or their boss? That’s why I always I advise people if you really want to invest, no matter in equity, mutual fund (unit trust in Commonwealth countries), commodities, real estate….etc, first thing first you need to do is to have Firm Character, followed by having vast knowledge and with ample time. If you have all three, congratulations! You are the one who decide your own fortune and I see no reason why you could lose out to others in the long run. If you do not posses ALL, yes, I mean ALL of this, the best thing you could do is to find out the person who has ALL of it. But, be careful that the person you choose must posses another trait that is VITALLY important when managing others people money (OPM) – INTEGRITY.