Managing Risks Rather Than Eliminating Risks

Long, long ago in south central Louisiana near Morgan City, my grandfather worked for the Southern Pacific Railroad. His job was to do some bookkeeping and to open and close a railroad bridge for tug and barge traffic across a river called Bayou Boeuf. This bridge was about 3/4 of a mile long.

When I was about 10, my dad took me to the middle of the bridge. This bridge consisted of rails and ties, and the bare minimum of a support structure. When on the rails, you could look down and see nothing but a fast flowing river. My dad then showed me how to save my life if I found myself at this spot and noticed that a train was coming and not allowing me enough time to get to the other side. My dad never said, "Don't ever go on the bridge!" My dad did not try to eliminate this risk from my life; instead, he showed me how to manage the risk.

I believe that our modern society spends too much time trying to eliminate risks relative to the time spent on teaching how to manage risks. I cringe when the government passes laws trying to eliminate risks from the financial community rather than expecting the financial community to learn how to properly manage risks. As traders, to be succesful, we need to spent a lot of time learning to manage risks rather than wasting time trying to eliminate risks.

Thanks Dad!

Charles


"There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!"
Reniniscences of a Stock Operator by Edwin LeFevre