“When you change the way you look at things, the things you look at change.” —Max Planck, Nobel Lauriat, Physics 1918
Demystifying Risk...Really?
Can risk and its intricate, multi-dimensional and ever changing nature, actually be demystified?
If that view resonates with you, you’re definitely not alone. Risk is often viewed as a multi-faceted and bewilderingly complex phenomenon. It’s also a commonly held conviction that perplexing, complicated, challenging phenomena like risk must be addressed with complex responses. However, meeting complex issues with complex solutions can often create more confusion than they resolve, not less. That’s exactly what’s happening with our current, unnecessarily technical and overly intricate view of investment risk as well.
Fortunately, the seemingly complicated issues associated with risk can be addressed and resolved by working to simplify the way we look at and deal with risk. Doing so will also help us reduce the uncertainties, fears and the risks investors normally associate with risk management, plus make our risk management efforts more effective.
Once you’ve “demystified” risk in this way, you’ll never look at risk and risk management quite the same way again. In fact, consider the observation of Oliver Wendell Holmes, Sr. on the topic of looking at things in new ways:
“Every now and then a man’s mind is stretched by a new idea, and never shrinks back to its former dimensions”
One of the most powerful examples of the viability of working to de-complicate seemingly bewildering issues is the breakthrough insight of physics genius Albert Einstein. He famously uncovered a basic law of the universe when he demystified and simplified the previously unknown, baffling, and seemingly unrelated relationships between energy, the speed of light, and mass, with his famous equation: E = MC2. As a result, Einstein said:
“If you can’t explain something simply, you don’t understand it well enough”
As financial advice professionals we have an enormous opportunity to help our clients demystify, simplify and meet their crucial “unmet” need to better understand and manage the full range of uncertainties and risks of our rapidly changing, increasingly less certain world. In fact, author Andrew Zolli, vividly highlights that growing, universal need in his globally published book Resilience—Why things bounce back, when he states…
“In today’s rapidly changing world, even with perfect knowledge, one can’t escape the nagging suspicion we’re ballroom dancing in the middle of a minefield.”
Of course, by helping our clients meet and directly address their critical unmet need to better understand and manage volatility, uncertainty and risk, we’ll also help our businesses, ourselves and our profession in a fundamental and invaluable new way.