Tolerance to risk is a tough issue to tackle in my line of work… and it is curious to see that each person has different tolerance levels due to their past experiences and the way they see the world… this article is a story that highlights well that… there are three distinct sides of risk:
The odds you will get hit.
The average consequences of getting hit.
The tail-end consequences of getting hit.
The first two are easy to grasp. It’s the third that’s hardest to learn, and can often only be learned through experience.
In early stage investing, most invest without never having a full grasp of the tail-end consequences of getting hit, or some might know what that means but don’t care (aka a lot of money to spare or a less than advisable care with the money of others)… but, I believe that the best early stage investors factor in their approach a big chunk of probability of suffering of tail-end consequences of getting hit in their investments. They have a clear idea of the risks involved and that it is a part of the game, no matter how cautious you are in every step of the way. Informed data driven risk takers are better than gun swinging ones…
a great article from Morgan Housel