Understand 'Risk' and the different types of Risk

People inherently understand risk. Would you jump from one rooftop to another? I wouldn’t because its risky. Risk is a concept that puts a measure on the probability of certain outcomes, normally with negative connotations, for instance ‘we risk winning everything’ is less likely than hearing ‘we risk losing everything’.

Uncertainty and risk are related but not one in the same, for instance you can be uncertain as to who will win a football match, but it poses no risk (unless you have bet on the game!). Uncertainty can also have upward effects, for instance house prices in the future were uncertain in 1998 from that point until 2006 they rose, from 2006 to present they have fallen. It is still uncertain where prices will end up. The ‘risk’ however of buying in 1998 is almost non-existent whereas the ‘risk’ of those who bought in 2006 is very tangible, many of these people are in negative equity. What they have witnessed is ‘Economic Risk’.

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Understand ‘Risk’ and the different types of Risk

People inherently understand risk. Would you jump from one rooftop to another? I wouldn’t because its risky. Risk is a concept that puts a measure on the probability of certain outcomes, normally with negative connotations, for instance ‘we risk winning everything’ is less likely than hearing ‘we risk losing everything’.

Uncertainty and risk are related but not one in the same, for instance you can be uncertain as to who will win a football match, but it poses no risk (unless you have bet on the game!). Uncertainty can also have upward effects, for instance house prices in the future were uncertain in 1998 from that point until 2006 they rose, from 2006 to present they have fallen. It is still uncertain where prices will end up. The ‘risk’ however of buying in 1998 is almost non-existent whereas the ‘risk’ of those who bought in 2006 is very tangible, many of these people are in negative equity. What they have witnessed is ‘Economic Risk’.

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Geopolitical risk and the terror in your pocket

One thing you will hear more about this year is ‘geo-political risk’ and it spans many sectors and countries. One example that instantly jumps to mind is Nigeria and the Niger Delta. Oil hit $100 a barrell and this was blamed on ‘geo-political risk’ because of the likes of MEND who are the ‘movement for the emancipation of the niger delta’ (mentioned in a previous post), anyways, they go around bombing pipelines etc. and this causes panic in the market.

What… me worry? (famous line by Alfred E. Newman of MAD Magazine) something that really bothers me is things like oil at a hundred dollars a barrell because of a ‘supposed fear’ in the market, for every time something happens that threatens oil has there ever been an actual hold put on supply? (other than in the 70’s and we can’t really compare the new millenium to the way it was back then)

So basically the oil industry has a permanent choke hold on prices because all they have to do is prepetually cry wolf!

watch a film called ‘who …

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