12. What is Financial Risk

Risk Vs Reward

• Risk: You'll loose all or some of your money
• Reward: You'll make a lot of money that you didn't have to work for

What is the baseline value for risk and reward

10 year, U.S. Federal Note is the baseline investment value. This is our benchmark and it changes everyday.

What causes financial risks in a business

1. Excessive Debt
   • Companies incur debt because they want to speed up time
   • They can own assets now instead of waiting for them later
   • Some debt could lead better performance, but a lot of debt is definitely not a good sign
   • "Only when the tide goes out do you discover who's been swimming naked" - Warren Buffett
2. Overpaying for an investment
   • "Price is what you pay. Value is what you get."
   • The house was still a great house. The market conditions didn't change.
   • The poor investment was based off the initial price paid, not the quality of the home.
3. Not knowing what you're doing