Sunday, March 28, 2010

What a horse trial taught me about risk and return!

If a man is alive, there is always danger that he may die, though the danger must be allowed to be less in proportion as he is dead-and-alive to begin with. A man sits as many risks as he runs.

~Henry David Thoreau

I was lucky to be able to be a jump judge recently at the Red Hills Horse Trials in Tallahassee. The horse trials consist of many difficult jumps that horse and rider have to make over without any errors like refusing to jump or stopping before jumping.

My job in the afternoon was to sit on the far side of the jump way out of way of the horse and rider to insure that the horse did not fall after the jump and then radio into control that either the horse and rider made it over the jump or there was some problem.

I was sitting off to one side of the jump to insure that I had good visibility of the jump. I was not anywhere near where the horses were going to land as I just did not want to interfere with the rider and horse, plus I wanted to be safe. Having a horse fall on you just is not a good idea.

All of the horses came from one direction and everything was going well. The horses were doing great over the jump that I was involved with. However, all of a sudden one horse and rider came from another direction as they thought it was a quicker trip to the jump. As they jumped from a way different angle than any other horse, I found myself staring at a horse and rider heading right to where I was sitting as they cleared the jump. As it happened very fast, I had no time to move and saw my life pass in front of me. The rider was able to steer the horse around me and keep going without effecting his time or the safety of the horse.

While this is a great horse story, I walked away with a new appreciation of risk and return. When I thought about the event, the thought of risk just was not in my mind. I thought that it was going to be just a fun afternoon without any risk. Basically, I completely misestimated the risk/ return tradeoff. However, that being said, I plan on going back and being a jump judge again, but this time sitting in a place that no matter what direction the horse comes from I will be safe and exposing myself to a whole lot less risk.

Every entrepreneur needs to make sure that they evaluate clearly what the risks and returns are in any new venture. If this is not evaluated thoroughly, then the entire business can implode.

The recent bank crisis was simply caused by so many bankers not estimating the correct risk/return ratio. This failure was caused by both the failure to assess the risk of property values falling and credit default swaps.

Now go out and make sure that when you take on a new venture, you do a correct assessment of risk/return.

You can do this!!

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