Truth About RISK: Why You Can’t Eliminate It, Only Transfer It

Most people really do not understand the intricacies of risk. Most people actually don’t understand that risk cannot be eliminated. In fact, risk can only be transferred. There’s no such thing as actually eliminating risk because the very action that you do to try and eliminate risk actually has its own risk exposure. Whether you do something or nothing, all of it is tied to some degree of risk. And in this video, I want to discuss exactly what I mean by that. Without further ado, let’s get straight to it.

Welcome! If you’re new to the channel, my name is Matt Jimenez, and I’m an entrepreneur who has worked with the greatest minds in finance over the last several years. I’m here to pour into you guys everything that they’ve poured into me. In this video, I want to talk solely on risk. A lot of people in the investing space think that if they do one action, they could actually take away risk. In fact, there’s no such thing as taking away risk. Risk is forever present, whether it is you holding cash, or investing in real estate, or investing in money markets, or whatever investing vehicle you deem worthy. All of them are tied to risk. This is the very essence of why you cannot eliminate it; you can only transfer it.

Let me give you an example. Let’s say you have a real estate investment, and let’s say you have a single-family home that you bought for $200,000, and now it’s worth $400,000. So you’ve doubled your investment. Now, holding that house means that you are participating in the real estate market, so you’re subject to the volatility of prices either increasing or decreasing on your home, meaning you’re exposed to the real estate volatility. And let’s say you want to get out of the house because you want to get out of the volatility that has come with the real estate market. So you go ahead and sell that house. Well, now what you’re actually saying is that you think the dollars that you sold for are going to be more valuable than holding that home in the long run. Because if you sell it for $400,000 and now you just keep that sale in cash, meaning you have $400,000 in cash, you are saying that you bet the economy is going to be well. That is naive believing because if you hold cash, you’re subject to inflation and or deflation depending on the circumstances at hand. This is what I mean by you cannot eliminate risk; you can only transfer it.

So even though you sell an asset, you sold it because you think the value of it is greater than what you got it for, or maybe you need the cash so you take a loss. But going into cash and holding the cash is still a position in itself. So whether you do something or do nothing, you’re voting, and a vote is done with your actions. So if you hold the house, now you’re saying that you think that the property of the house may hold its value or go up in the future. That’s optimistically speaking. Now, if you sell the house, that’s you saying that you believe that dollars are going to be worth more than the house in due time because you think the market may come down. So all you did in that transaction was transfer the risk of the future of that house into dollars for the future of the dollar’s value. That is risk transferring.

Another example: Let’s say you have shares in the S&P 500, which is typically – well, not typically, but back in the day, the stock market was actually heavily correlated with how well our economy is doing. But in today’s current age, the decoupling has been in full effect, and the stock market does not resemble the economy whatsoever anymore.

Okay, so here we have TradingView up, and I just want to go over the S&P. And the reason why I’m bringing this chart up is because I want to show you guys a visual representation of what it looks like when you sell your asset and you’re voting to be in another position, meaning cash. But more importantly, I want to highlight the S&P behavior as a whole because I want you guys to conceptualize how long it actually takes for the market to recover from these large sell-offs.

So let’s say you had an investment in the S&P 500 back in the 1920s, specifically up until 1929 where the market actually topped. So I’m going to go ahead and drop a vertical line here just to mark that for us. As you can see, it’s 1929. And let’s see how long it actually took to get back to this height. I just put my anchor here and drag all the way to the right. As you can see, this distance is how long it took for us to get back up just to recover this much of a market selloff. So the whole duration of this selloff and its recovery time took a grand total of 25 years. So in the event that you sold your money thinking that the market was at a fair value or you thought it was overvalued and you went into cash, you actually opted out, saying that I believe my future value is best held in dollars. So you got out of the S&P 500, which would have been a smart move, of course, but as you could see, those who did not, it took 25 years for them just to recover potentially whatever they had lost. And again, if we just grab this top here and pull over to the right to see when we met this value once again, which was right here. This is from 1973 to 1980. And the reason why I’m highlighting these is because I’m trying to show you guys how long it takes for the traditional markets like the S&P to recover from a massive selloff. Because as humans, our time is limited on Earth, and we need to be the most effective as possible. And as you could see, being in equities like this, having to wait a decade or two just to have the valuation of your investment get back to what it was originally worth is extremely futile to our time and our wealth. And again, here in 2000, when we had the big bubble, we did not recover until 2007. So 7 years it would have taken someone to just gain back potentially what they had lost, depending on where that is when they bought, of course. And again, right here from 2007, we had the massive selloff over to 2013 when we recovered. That’s about another decade in time just to recoup our investment. Now, the reason why I’m showing you this is because when we are trying to transfer risk or eliminate risk exposure, we’re really just opting out to another system of risk. And the reason I bring this up is because I want to emphasize the points of our time here on Earth. Every year counts, and if we are solely tied to something that is subject to long durations of time where wealth cannot be generated just because it’s trying to be recuperated, that is the least thing that we would want to do. The best thing we could do in these situations when we’re trying to diversify our risk is actually look for assets that are non-correlated to the economy and non-correlated to markets. So whether the market is in a bull

 market, bear market, or market, you need to find assets that are opposite to however the market is behaving. And a lot of the time, the old route would be precious metals and certain commodities. Now, the new thesis is that Bitcoin may act as that hedge against what the market will be doing or where the economy is headed. In fact, the matter is since Bitcoin has been around, it’s actually not shown that for us, and it’s unfortunate because myself as a Bitcoin lover has to come to terms that it’s not serving its use case as that. But one thing that has served this use case as that for myself is using software, specifically algorithmic trading software. You see, the way that these things are programmed is to be very active in markets in the micro movements, whether it’s to the upside or to the downside. It’s irrelevant because it’s taking multiple positions both long and short, and all of them are closed within a day. So whether the market’s going on a complete rampage to the upside in a bull market, trades to the upside, and the downside on all the increments of the impulsive movements and corrections. And same thing for the bear market. This is an amazing tool to be uncorrelated to these market behaviors because your future value is not predicated on where this valued asset is headed. So for instance, if I bought Apple stock, my predictions of this asset going to X amount of dollars is solely dependent on that stock going up. Now, if you have something that it doesn’t matter whether it goes up or down like a software, this is where you could really reap the benefits and completely stray away from those decade or semi-decades of recovery phases where the market crashes and has a long, long time just to get back some of the value, if not all the value, from before the crash. And if you’re interested in how you could potentially license one of these software to un-correlate yourself with the economy and markets and help transfer risk, the link is down below. And if you enjoyed this video, please leave a like or comment.

Like always, my friends, peace.


Please visit Truth About RISK: Why You Can’t Eliminate It, Only Transfer It to watch the full video on YouTube!

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