Risk: a method to the madness?

Warren Buffet wrote: "You have to be fearful when others are greedy and be greedy when others are fearful". Warren was referring to the "ideal" strategy to adopt when dealing with the stock market. The old adage "where there is a will, there is a way" can be rechristened to reflect the new-age saying "where there is risk, there is a reward". It's definitely not Boolean as in there is guaranteed reward when risk is present, or vice-versa. All it does is increase the possibility that one might be more successful when taking risks, than when compared to not taking risks at all. Risk and Reward are two words that have always gone well together - like peanut butter and jelly in some ways because one is sweet and the other salty! The culinary experts advocate a pinch of salt in the most sweetest of desserts to give it a nice twinge - maybe they need to be told the reference to risk and reward!!

Back to mainline, I read an excellent article on 'risk and reward' in the weekend Financial Post newspaper (yes a physical paper on hand, which is fast becoming oblivious!) that could be best summarized by one line that the author beautifully put in, to describe risk taking. Here is my attempt at quoting the article (not verbatim): "Risk taking is by no means consistent as it extends across avenues. A person who is an extremely careful driver on the streets could be the most carefree when he is in a casino. On the other hand, someone who is extremely careful and avoids risk taking in his financial aspect of life could be the most reckless when on the streets."

The essence of what the author's statement meant, or rather what yours truly interpreted it to be, is simple - risk appetite is not just unique to individuals but also unique to areas of life the very same individuals choose to apply it to. You cannot, by any stretch of imagination, choose to be consistent in risk taking. Neither is anyone's appetite to risk taking consistent across all walks of life. I was curious, when I read this article, as to the link between one's risk appetite and their general personality. Interestingly enough, there is a whole scientific community that has delved into this aspect. I for one have been risk averse all the way to one end of the pendulum, and I believe part of it comes with the territory and the culture - the role one's upbringing plays in determining the intangible aspects of decision making in life couldn't be more apparent than risk appetite for example.

What's your risk appetite? Have you seen rewards commensurate with it?