Risk Hai To Ishq Hai

“Risk hai to Ishq hai” has become a very famous dialogue. The contextual meaning of this is, if you take a high risk you will receive higher returns. However, it is easier said than done. It may look fashionable to deliver such dialogues but it is advisable not to follow these in letter and spirit. As a wise investor one must be well aware of one’s risk-taking abilities and never cross the limits.

There are many definitions of risk. In layman terms, the risk is defined as the possibility of something going wrong. In a more specific way, the financial risk is generally defined as “the probability that the actual returns of an investor may differ from the expected returns.” In the stock market, the investor is at risk of losing his entire capital. Hence, one has to be very cautious while dealing with risk.

Risk is measured mathematically and hence has inherently defined objectivity. Risk is quantifiable. However, what differentiates risk from other measurable financial metrics is its hidden behavioural subjectivity. For the same amount of risk, the psychological impact on two individuals varies significantly. Someone may be comfortable losing one lakh rupees but for other, it may be a lifetime blow. This is the precise reason why we consider risk as a behavioural demon to be tamed.

Risk is more of a behavioural trait than a mathematical formula. We all know the Mahabharata story of Dharmaraj, the epitome of ethics and moral values. He has taken the highest risk of his life in betting his wife in the game of dice. I cannot recollect any other example of irrational risk than this. This reflects the insane behaviour of an individual in a crisis situation. And if Dharmraj can behave this way, how can we lesser mortals stay away from such mind games? The moral of the story is the risk has the implicit ability to destroy your capital, yourself, and your Ishq. All in one go!!! So better be warned.

The last year has seen an influx of new investors entering the market. The market has also been very kind to them. It is not in a mood to sober down. Every day dawns with new highs. These first-time investors have not seen meaningful correction yet, forget about the bear phase. These investors are lured into trading and speculation by social media. They do not understand the risk of intraday trading, FnO, and the bitcoin. They just want to have the fun. For them “Risk hai to Ishq hai” has become a tagline of financial success. This is the age where the lethal combination of risk and Ishq is bound to cause extreme pain, agony, and hurt. And hence these are a few words of wisdom.

It has become fashionable to boast “risk hai to Ishq hai”. However, before boasting, please ensure you have covered your risk adequately, else the market will wipe you out. We, at “Defensive Investments” do give utmost importance to mitigating risk to the extent possible. The other aspect we study meticulously is investor behaviour. And the last thing we focus on is returns. We strongly believe that if we can control the risk and the behaviour, the returns will follow automatically. Once we have defined the risk and the behaviour, we merely sit back, meditate, and enjoy doing nothing.

Risk and Ishq are two sides of the same coin. Risk is as such risky, but Ishq is also equally risky. Both depend on behavioural traits, both need to be well understood and both need to be controlled. If you can win over “Risk and Ishq” you are bound to be highly successful. You know eventually it’s all in the mind !!!

For a change, neither Warren nor Charlie quote today. I have a great Urdu poet.

Jigar Muradabadi said, “ येइश्क़ नहीं आसाँइतना ही समझ लीजे

इक आग का दरिया हैऔर डूब के जाना है !!! “