Current News: Investing Risk because of Europe Debt

The Greek debt problem, $236 Billion, is only a part of the much larger Europe debt problem. Italy, Spain, Ireland and Portugal each have larger debt than Greece. For a frightening look at the numbers, and the interlocking problem, see New York Times graph of five weak economies.

Investing Risk

Investing your money is not limited to stocks recommended by those who extrapolate past market trends, but with no awareness of risk.

For example, any investment in stock in any market will affect how you get to financial independence, and will affect when you are ready for retirement.

Financial decisions to allocate your capital into a portfolio must consider the most important and most basic rule for personal finance: preserve your capital.

Even real estate, illiquid for investors but previously thought to be safe, recently has been worse than mutual funds or individual stock market share picks.

The venture capital companies, and their investors, look for home runs every tenth investment or so. What can we learn from this example that can be applied to investing basics? Should some of your investments be in high risk businesses, or be in a mutual fund for diversification?

For investing guidance, this site is dedicated to the real contrarians, especially Nassim Nicholas Taleb:

” The best description of my lifelong business in the market is “skewed bets,” that is, I try to benefit from rare events, events that do not tend to repeat themselves frequently, but, accordingly, present a large payoff when they occur.
I try to make money infrequently, as infrequently as possible, simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price.”

Taleb suggests the most conservative investment, United States Treasury obligations, for 85 to 90 per cent of your invested capital. The remaining 10 to 15 percent should be invested in bets that pay off big, preferably with no upper limit, if you win. None of the value investing analysis, because of the great adverse consequence of a big negative event.

This site will include sections on traditional conservative investing, including dividend stocks and mutual funds. But the imagination efforts will be about Google-like and Amazon-like bets on the future. These stocks not only had risk, but also had no upside limit on their return.