The main rule in the investment industry is the direct correlation of “RISKS – REWARDS”.
Higher risks must be compensated by greater returns.
Now, when it comes to risks – there are two types of risks an investor is facing: “systematic” and “unsystematic” risks.
Unsystematic risk – investors have some or full control over it. This can be linked to portfolio diversification, company-specific, industry-specific risk, leverage level, and so on. The investors may choose to take a higher or lower level of risk – depending on their risk tolerance.
Systematic risk on the other hand, as the word is suggesting, is related to the “system” – this is outside the control of an investor – it is macro-related.
I have listed below the types of risks:
In Venture Capital Investing – unfortunately, even the systematic risk is difficult to control – the market is volatile, as the trends are changing.
Now, as you would tell – the worst is when you can’t control almost any of the risks and this is where we are all currently at:
Interest – FED rates, Treasury rates, interest rates
FX rates – BRICS initiative
Political stability – war in Ukraine and other countries
This decision is an inherent investor behavior to “wait and see”.
However, the most experienced investors who went through similar anomalies in the past would build patterns and will correlate these with similar past cases (e.g. 2007-2009 economic crisis), taking “more risks” with the bet on “higher returns”.
