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Technology Stocks : SAP A.G. -- Ignore unavailable to you. Want to Upgrade?

To: mauser96 who wrote (2526)	9/11/1998 8:41:00 AM
From: growthvalue	Read Replies (1) \| Respond to of 3424

OTOT Lucius - Risk is obviously a complicated subject - I tend to dislike beta, firstly. I think there exists an "objective" risk but I think it is not truly and accurately quantifiable - there are too many factors. I tend to focus on business risk. In other words, what are the competitive risks of a company, what are the risks of changes in the economy to this company etc. Invariably you are likely to overlook something that affects the risk profile. I don't come up with a specific number, necessarily but rather try to understand what the risks are to a business and have a reasonable grasp over the probability of these risks occurring. I like companies, for example, that don't necessarily rely on the strength of the economy because I don't feel equipped to predict the economy with any certainty. Every company relies on the economy, of course, but some more than others. Once I am fairly certain that the company has some immunity to recessions, I look at the competitive profile, does it have a competitive advantage, is the product proprietary, will the product become obsolete, etc. I can't predict the future with 100% certainty, but I think it's possible to make a pretty decent guess. The reward doesn't affect the business risk - although it does affect whether a risk is worth taking. A coin flip is 50/50, whether or not you win or lose a bet, regardless of the reward. If you could risk $1 and win $3 on a 50/50 bet, though it might be worth it if you diversified. I.e. there is a 50/50 shot that you lose all your money if you only make the bet once. However, if you made a diversified portfolio of these cases, though, the law of averages suggests it would pay off. On average, you could expect to make $.50 on each dollar invested. And the more bets you make, the lower your risk. Of course a coin flip is a case where you know all the variables that influence the overall risk. In business, of course, you have to guess. My main point before, however, was that just because an investment works out does not mean that it wasn't risky. Making a bet on a 100 to 1 horse is risky looking forward and backward regardless of whether you win. Or if you jumped off a bridge blindfolded and happen to land in a boat filled with cotton, that doesn't make jumping off a bridge blindfolded risk-free in retrospect. GV