[bruce511]

This is all about risk, and the value of risk (which we seldom see or recognize, much less quantify.

In one sense there's risk in taking on debt. Risk of job loss etc. In another the lender is taking on risk - they're hoping you can repay. Part of interest is to cover inflation, part is to hedge the risk.

Many comments in this thread start with the writers attitude to risk. What if....

And there are definitely places where the strategy can turn bad. Holding stocks can be valuable (they're growing faster than the cost of money) but they can also lose value (sometimes quickly).

Real value in shares is in long-term positions (just ride out the dips) but margin borrowing can force sales inside a dip if you are over-leveraged. How much you lever depends on your appetite for risk.

In a recent exchange with a potential client I explained that I get paid up front. He normally pays 90 days. He complained that my approach meant he'd "take all the risk".

"Exactly."

I offered to requote, where I take the risk, but I warned him it would be substantially more -because I put a high value on risk-. He trusted me enough to pay up front, and his risk paid off.

It's hard to quantify risk, but it really helps to at least understand it exists, and what the risks are. "Seeing" risk takes some practice.

[s1artibartfast]

I think you have an excellent analogy. The thing I like about it is it includes the fact that there is often a large cost for not taking risk. I feel like a lot of otherwise smart people get caught up in avoiding risk buy overlooking the cost to do so.

In my opinion there's a hierarchy of understanding but I've gone through. The first is not understanding risk, followed by understanding risk and avoiding it, followed by understanding the cost of avoiding risk and trying to find the right level.

Like you point out, the cost of avoidance can be quite substantial.

[bruce511]

Yes, because risk has value, there are substantial gains yo be made taking on risk (and it working out), not to mention substantial losses by both avoiding risk or taking the risk on and it not working out.

From a purely business perspective its ideal to make the other guy take the risk, without financial penalty. More often both parties understand risk and can figure out who wants the value/risk and who prefers the less value/less risk.

[s1artibartfast]

I dont disagree. My point is mainly that if you are always avoiding risk and incurring the cost, you probably aren't doing it right, and probably don't understand the costs you are paying.

Not all losses are substantial, and not all substantial losses are greater the cost to avoid it. don't pay $20 for insurance on a $1 package.