Investment and the Risks in it

Investment and the Risks in it
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An investor may bear a risk of loss of some or all of their capital invested. Investment differs from arbitrage, in which profit is generated without investing capital or bearing risk.

Savings bear the (normally remote) risk that the financial provider may default.

Foreign currency savings also bear foreign exchange risk: if the currency of a savings account differs from the account holder’s home currency, then there is the risk that the exchange rate between the two currencies will move unfavourably so that the value of the savings account decreases, measured in the account holder’s home currency.

Even investing in tangible assets like has its risk. And just like with most risk, property buyers can seek to mitigate any potential risk by taking out mortgage and by borrowing at a lower loan to security ratio.

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In contrast with savings, investments tend to carry more risk, in the form of both a wider variety of risk factors and a greater level of uncertainty. Industry to industry volatility is more or less of a risk depending. In biotechnology, for example, investors look for big profits on companies that have small market capitalizations but can be worth hundreds of millions quite quickly. The risk is approximately 90% of the products researched do not make it to market due to regulations and the complex demands within pharmacology as the average prescription drug takes 10 years and $2.5 billion USD worth of capital.

Famous investors

Investors famous for their success include Warren Buffett. In the March 2013 edition of Forbes magazine, Warren Buffett ranked number 2 in their Forbes 400 list. Buffett has advised in numerous articles and interviews that a good investment strategy is long-term and due diligence is the key to investing in the right assets.

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Edward O. Thorp was a highly successful hedge fund manager in the 1970s and 1980s who spoke of a similar approach.

The investment principles of both of these investors have points in common with the Kelly criterion for money management. Numerous interactive calculators which use the Kelly criterion can be found online.

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