Monday, May 13, 2013

Risk vs. Risky

Last week, I had a chance to attend a roundtable conference with local business owners.   My intention was to meet at least 3 people who might be able to help move my business forward either through identifying a borrower or finding a really good real estate deal, or possibly talk about investments available within my business at this time - in other words - raise some capital for some deals. 

Thankfully, I was able to talk to at least one person about investing some money, and as I described our business model to him, the topic of risk came up.  He said to me "isn't that risky?". 

Now, personally, I love when this topic comes up because it allows me to put on my educator hat and talk about the difference between Risk and Risky.    In fact!  My first question to him was if he understood the difference between risk and risky.  (btw, thanks to Dan Doran for help with The Law of Objections).   Everything has risk, I told him.  There is risk in you walking down the street with your net worth in your briefcase.  There is risk with just putting under your mattress or in a safety deposit box, so  " essence, the amount of risk may then lead you to determine if something is risky is that what we've determined?" which is what we both agreed upon..   

Then I asked him, "if you knew the downside was covered, how many deals would you get involved with?   In other words, if you had a very high comfort level for covering the downside, would that then be determined risky?"    I shared with him that Risky is associated with lack of the right financial education and that the banker's mentality is to cover the downside first.  We manage risk by studying it and managing it and covering it as much as possible.   Of course, it's impossible to eliminate all risks, but if we can manage it to the largest extent as possible, then we can maximize profits by rarely losing.  

That's what I call the Banker's Code Investment Strategy.