Risk Management as Philosophy?
The world of Finance has an intuitive understanding of Risk. Since earlier days of business activities, man had performed Risk Management as an integral part of the original actions, never as a conduit or sub activity. Since the barter system of trading, to the evolvement of the medium of exchange, read ancient coins to modern paper money to technology driven electronic settlement system of transactions, mankind did not “think” of managing risks involved in these activities, but did it! Parties involved in transactions did bring in risk as a philosophy that must be understood and established. Risk Management has never been, thus, an alien philosophy or practice of such philosophy. It was as necessary as the transactions themselves, simple or complex!
Since I do not intend to write fully on the evolution of Risk, and its philosophical undertones, I will only state, systematically and elaborately, the intrinsic nuances that build this subject up over time. It must seated here, with clear convictions and certainty, that the uncertainties pertaining to life is the leitmotif of this vast and absorbing subject. Like pure science and mathematics, the rules on Risk are less finite, and constantly evolving. We do not have Newton’s Laws or an E = mc^2 here!
The Strange Philosophy:
One of the important, and interesting, matters that go with Risk is the speculative tendencies of mankind since the dawn of civilisation. Since we chose to remain to the Finances as core of this blog, we must understand that speculative finances is not a modern day scenario, and that it has always been there. Since time immemorial, humans have been endowed with “tryst with destiny”, and reaching out to the unknown had always differentiated mankind from other species. Mankind built houses, cities, ships and means to cross mighty oceans. There was an urge forever to reach out to something unknown. As we advanced in building civilisations, we started speculating, on everything literally. Welcome to the world of the Stock Markets!
For beginners, Common Stocks or simply Equities represent ownership in a Company. A Company, by definition, is a legal entity, having a distinct identity in the eyes of the law, authorised to do certain businesses and raise money to do that, both from public and private sources, depending upon its business and capital needs. The existence of companies necessitated a “place”, where not only capital in some form would be raised, but “valuations’ could also be determined. Although speculations existed long before the Company form of business emanating, speculation got a real meaning now that a “place” or networks were established to deal with activities pertaining to a company or companies.
(TBC)
