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Finance: How Are Risks and Rewards Related? 589 Views
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Description:
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in ten billion that you win, then it's a bad bet, ten times over.
- Social Studies / Finance
- Finance / Financial Responsibility
- Life Skills / Personal Finance
- Finance / Personal Finance
- Courses / Finance Concepts
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- College and Career / Personal Finance
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Bonds
- Terms and Concepts / Company Valuation
- Terms and Concepts / Ethics/Morals
- Terms and Concepts / Insurance
- Terms and Concepts / Investing
- Terms and Concepts / Metrics
- Terms and Concepts / Regulations
- Terms and Concepts / Stocks
Transcript
- 00:04
Finance a la shmoop how are risk and reward related? or
- 00:10
interrelated okay so here's an illustration of risk you're in a golf [golfball near a golf hole]
- 00:15
tournament on the first tee of a hole with a narrow fairway if you take just a
- 00:19
half swing your ball won't go very far but you also likely won't end up here [golfer gives a half swing and ball goes towards the hole]
- 00:24
it'll almost certainly fit nicely in the fairway and it's likely you'll need
Full Transcript
- 00:28
three or four half swing strokes to reach the green if you're cool with [golfer taking multiple shots and reaches the green]
- 00:33
shooting 28 over par or a hundred today well then maybe these half
- 00:37
swings are your ticket to happiness sometimes a score of a hundred wins the [golfer stood beside a scoreboard with a score of 100]
- 00:41
purple turkey that is you are taking less risk and are totally fine being
- 00:46
rewarded less all right now meet Corey Mcilshmoop he wants the big score
- 00:52
lots of strokes under par and he's willing to risk a lot to get there. His [Corey Mcilshmoop swinging a golf club]
- 00:57
ball either goes 340 yards and lands on the green setting him up for an eagle
- 01:02
putt it goes out of bounds with a vengeance there, ouch.. all right well on
- 01:06
the investing golf course like this one generally speaking riskier investments [golf course made into an investment course]
- 01:10
are things that don't have a long track record of success like compare the
- 01:15
coca-cola company with a new IPO of whatever.com what are the odds that in [a comparison of coca cola vs. whatever.com]
- 01:20
five years people are still drinking sugared fizzy water well pretty good
- 01:25
right now how about the odds of a billion people still being enamored of [myspace and whatever.com with number of people liking the website rising]
- 01:29
whatever com yeah much less clear like less clear than crystal pepsi.. Risky can
- 01:35
also mean private investments in two kids plugging away inside of a garage [Kids working on a project in a garage on laptops]
- 01:39
and yeah they could be Larry and Sergey making Google but more likely they could
- 01:44
be buzz and billy-bob making a whoopee cushion that pushes the bounds of
- 01:47
realism yeah..risky can also be just a company that doesn't pay a dividend if a
- 01:54
company does pay a divy, you at least get the dividend back each year as you slowly get your
- 01:58
initial investment returned to you you can make money even if the stock price [company's share price, dividend and yield]
- 02:02
doesn't go up in the case where stock pays no dividend your instead betting [person puts chips onto a roulette table]
- 02:07
everything that the company will just grow but growth companies with no
- 02:11
dividend while that's all well and good think things
- 02:13
like Facebook and Amazon and uber but if the company doesn't grow well then bad [whatever.com falling on the floor]
- 02:18
things happen you've got no dividend and the share prices declined and so the
- 02:23
basic idea is that the more risk you take the more reward you can have in the [man playing golf and eagle swoops and picks up ball]
- 02:27
same lack of reward you can have as well and every now and then you get one of
- 02:31
the three hundred forty yard drive to go in the hole which makes the risk totally [money falling next to a building of baby's first chainsaw]
- 02:36
worth it yeah because well you're never going to sit around telling your
- 02:39
grandkids about the time you shanked your drive 15 yards [grandad telling children a story about golf]
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