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What is "Risk" in terms of investment.


I've heard about some general investment statements / advice from people often in the last few years, especially when the price of a stock is falling in the phases.

Some general statements spoken by investors.

“Before you invest, you should be aware of your risk appetite."

“The market is currently at risk, can go down to 10%, invest later. "

“I am risk adverse investor."

When it comes to investing in the stock market, everyone talks about the risk. But nobody knows the real meaning of the risk, we can feel the earth under our feet. Dear investors, the risk is not a number which you can measure, such as a 40% decline in the market or 20% of your favourite stock is not risk.

What does risk really mean?

According to Warren Buffett, the famous investor, there is a permanent loss exposure on the stock you hold or the investment you have made is risk.

Permanent losses on your investment capital occur when your investment business stock has been closed for a long time or closed forever. For example, if a company declares bankruptcy for some reason or the power of generating income of the company is over, then the shareholders capital of the company will also end. When the market falls and your share also shows a decline, then we will not say this risk, because this fall of shares is not permanent if you have purchased shares of the best companies in your portfolio.

Of course, as an investor, we will not buy shares of a company that wipes out all our investment capital.

Here are two simple rules that can save you, completely ruining your investment capital.

Rule 1. Understand company business
It is extremely important that you understand the business of the company whose stock you are buying. If you are investing on someone's opinion advice, surely you will have a loss on your investment, because you don’t even know what you are doing. So, before investing in a company do your full homework and buy that stock only when you are sure that the company will not go down further in the future.

Remember, the risk comes when we are doing something and we don’t know anything about it, whether it is in life or investing in the stock market.

Rule 2. Never borrowed money to invest.
Never borrow and invest, leverage magnifies your loss and can turn your temporary loss into permanent.

The recession in 2008 is a good example of this western people have take all types of loans (car loans, home loans, credit card loans) without knowing whether they have taken the leverage they will be able to repay in the future. Then they also suffered heavy losses on their stock market investment.

Imagine yourself in this situation, then you will understand what the risk is and you will not want to take it at all.
Even though some stocks will not work in your desired direction, if you know clearly about the risk, then you will earn money for a long time.

Always remember this thing, the risk comes when you don’t know what you are doing, because when you don’t know what you are doing then you will surely lose all.



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