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Risk Management

A few years ago, when I was traveling in Corsica, a few of us had gone on a hike. We saw a path leading into the forest and out of curiosity, decided to walk in and explore. 

This was about a couple of hours from sunset, and we did not have any torches with us. We did not have a great GPS signal in the forest either, nor a map. 

Having walked on the path for over an hour, we had no idea where we were and whether there was an exit back to a road at the end of the path. 

We calculated that, even if we decided to walk back, we weren't sure if we would remember all the right forks that we took along the way and make it back out before it got dark. 

Naturally, there was a bit of a panic among the group. 

Eventually, we decided to keep going as it appeared like the forest was thinning ahead and that we were more likely to find some sort of an exit before dark if we kept going. 

A half an hour or so later, we came out on to the backside of a farm, which had a farmhouse. 

And there was relief in the group.

Needless to say, we got lucky. 

We took a risk going into an unknown path without any way to manage the risk we were taking. 

By definition, we get lucky only on a few occasions out of a many. So, the smart thing to do is to manage our risk.

In everything we do, from investing in the markets to going down unknown paths on a hike, it is better to have half an eye on how to manage the risk that we are taking so that we don't go belly up.

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