Understanding Risk in Investment

Risk is often misconceived as a measurable aspect based on volatility or price fluctuations, but it fundamentally represents the likelihood of an undesirable outcome, especially the probability of losing money. Many investors rely on historical data to gauge risk, which can lead to misguided assessments since accurate probabilities for adverse results are not readily available. This distinction highlights the importance of recognizing that quantitative approaches may lack precision in predicting actual risk. Therefore, a better understanding of risk involves focusing on the potential for negative results rather than solely on numerical proxies.