“There is no getting away from risks. There is only recognising them, managing them and deciding which ones you can take”. (Lynn Hopewell)
Shock, anger, sadness and love are just a few of the emotions I felt in the aftermath of the bombing of the American Embassy building in Nairobi on 7TH August, 1998.
Shock that someone would bomb American embassy building of all places. Anger at the cowardly perpetrators. Sadness for the families who lost loved ones especially women and children. And love for my mother because this was the day we were laying her to rest.
The August 8th bomb blast tragedy just serves to remind us how vulnerable we are and how we can’t take a day not even a moment, for granted because it may be our last. In other words, we live in dangerous times, no question about it. I mean, if you are not safe in American Embassy Building, then you are not save anywhere in the country, are you?
Let us face it to live is to risk. You can’t get a way from it. Even myself who is employed have already risked being laid off. We live in the real world and we have got to deal with it.
It is true from the foregoing that risks cannot be avoided, but to some degree they can be managed. In other words, if you are an investor, do not take unnecessary risks. Mark Twain once said: “there are two times in a man’s like when he should not speculate: when he can’t afford it and when he can”.
Let me use a scripture example to demonstrate risk management. One of the most dynamic illustrations of risk management in the heart of sacred scripture is found in the classic confrontation of David and Goliath. Even if you are well acquainted with all of the details of this drama, may I encourage you not to let your familiarity with the story rob you of its griping risk management message?
What was the risk? Goliath, Israel’s nemesis was a giant from Gath, a neighbouring, antagonistic nation. He was reported to b over nine feet tall. He was the “Heavy weight champion of Palestine” the best pound –for-pound fighter of his era. His threats had immobilised the armies of Israel, and they cowered in terror before him. The risk was to face unbeatable hero. But David saw an opportunity. The opportunity was that Goliath (Giant) was too big to miss to hit. He made a plan by choosing for himself five smooth stones, from the brook, and put them in a shepherd’s bag in a porch which he had and his ling was in his hand.
Why did he choose five stones? Because Goliath had four brothers and David was prepared for the whole family! I imagine he said to himself “I am not just going to knock this ‘buster’ off, but if I have to – I am ready for the whole family. Come out here, I have got a rock for each one of you”. Amazing calculated risk scenario! Isn’t it?
I hope you find living lessons from the heart of sacred scripture also that risks management occurs in all spheres of life and that if you are ready to put your boat in the water to learn more in areas like investments, please turn your eyes on the progressive paragraphs.
An investment dream that does not include risk is not really worthy of being called an investment dream. Halifax once said, “The man who leaves nothing to chance will do few things badly, but he will do very few things”. If you will never take risks you will never accomplish great things.
How then do you control your risks so that you make your investment dream a reality?
You first of all need to build a pyramid of risk. The pyramid of risk is a useful visual image for a sensible risk- reducing strategy. It is built on a broad and solid base of financial security: a home, money salted a way in insured savings accounts; plus insurance policies to cover expenses if something should happen to your health, your car, your house, your life or your ability to earn an income. As you move up from the pyramid’s base, the levels get narrower and narrower, representing the space in your portfolio that is available for investments that involve risk. the greater the risk of an investment, the greater up the pyramid it goes, and thus, the less money you should put into it.
Once you have built the base of your pyramid, you are ready to move up and become an investor. Take note that, the pyramid which is broad and solid at the bottom and gets narrower and smaller as you move up, is the perfect image for the sensible deployment of your financial assets. As long as you remember that, you will never stray too far out of your risk zone.
My explanation of the pyramid of risk does not in any way suggest that one should avoid all high risky investments. It does mean that one should confine these risky investments to the top of the pyramid- to the attic, where they can never occupy a significant portion of one’s investment portfolio. Invest as much as you can afford to lose because there is a good chance you will lose it and do not fear because you can only step on your toe if you are moving. Remember that you will always miss 100 per cent of the shots that you do not take. Chuck Yeager once advised, “You do not concentrate on risk. You concentrate on results. No risk is too great to prevent the necessary job from getting done”.
Risk does not occur only to individuals or investments but even to Nations or what nations do. For example Kenya’s vision 2030 established a new platform for the debate of Public Policy. It offered a more holistic, integrative and unifying language for public discourse. But trying to forecast the economy of a country 25 years into the future is a risky business. Take growth rate projections for instance. The integrity of the whole of vision 2030 agenda depends on the country achieving at least an average of 7 per cent GDP growth every year up to the year 2030. What is the risk here? The risk is that if the economy does not grow at the forecast rate, then it means it cannot achieve its soft torgets i.e social outcome.
In the final analysis, it is useful to bear in mind that the macroeconomic achievements of the country are of little consequence if they do not satisfy socially desirable objectives. The proper reckoning of vision 2030 will depend on how hard objectives serve its soft objectives, not the other way round. For this to happen there has to be identification of various risks of hard targets not meeting soft targets and remedial plans made on a continual basis.
In conclusion, I wish to state that we live in the real world where risks occur in every sphere of life. For example: to love is to risk getting your heart broken; to marry is to risk getting divorced; to breathe is to risk getting poisoned by air pollution; to settle for a ‘secure’ job is to risk getting laid off. Therefore, if you have to succeed in life then you must take risks.
Here is what the president of Coke, Roberto Goizueta, said about his decision to hire the man responsible for the new Coke disaster: “We become uncompetitive by not being tolerant of mistakes. The moment you let avoiding failure become your motivator, you are down the path of inactivity. You can stumble only if you are moving.”