There once was a Greek called Thales. Being ostensibly poor, he was ridiculed for being a philosopher, since it clearly brought him no wealth. One particular year, he decided to prove a point. From his knowledge of astronomy and his own observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised a small amount of money and paid a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready and demand soared, he would be able to let out the presses at a rate which brought him considerable profit. He did, and as he predicted, it worked so Thales became rich. He not only answered those who had reproached him, but also proved that although philosophers can be rich, they perhaps just don’t care to be. [Aristotle. (Politics, 1259 a 6-23). (Plut. Vit. Sol. II.4)]
While it worked out for our friend Thales through his wisdom and knowledge of the stars, he clearly also had a large risk appetite as the weather can be unpredictable! If you’re reading this and thinking how well you draw on your ability to discern future events by stargazing, then all credit to you! If you’re a mere mortal like us, and you’re up for a bit of a discussion on what risk appetite actually is, stick around.
Uh-oh. ‘They’re going to give me some advice.’ Well, since neither of us are financial advisors, we can’t. There’s our risk disclaimer. And neither of us has any interest in being a ‘guru,’ although Greek philosophers were the first social influencers, weren’t they?
We can only tell you what we’ve learned. And that we got that from our own personal experiences, and not from gazing at the night sky. We have both been wrong more times than we care to admit. Which means that we’ve learned a lot. We do both know by now what our risk appetite is though and why it’s important, both for our bank balances and our sanity.
So, what is your ‘risk appetite’?
Well, we might instead ask what is your appetite for losing? Risk is defined as: the possibility of loss or injury; peril; someone or something that creates or suggests a hazard; the chance of loss or the perils to the subject matter of an insurance contract, also, the degree of probability of such loss.