Enjoy the froth till it lasts

With the return of the highly unpredictable Donald Trump as US President this month, how should anyone manage his or her risks?

- ANDREW SHENG

We define risk as the possibility of the occurrence of an event or condition which, if it occurs, would negatively impact our well-being. We scan risks in order to try to avoid or mitigate such risks. Those who have wealth care the most because they have the most assets to lose.

The first thing to remember is risk cannot be eliminated, only managed or hedged. In a static zero-sum system, one man's risk is another man's opportunity. You squeeze one side of a balloon, it will expand on other sides. However, the balloon may burst or leak, so such risks are not improbable. In a dynamic environment, the balloon is ever expanding, and any action by one party could affect not only other parties, but also the balloon (system as a whole) itself.

There are always costs to hedging risks, and if you choose the wrong hedge, you could lose even more when an unexpected event occurs. The World Economic Forum's Global Risk Report 2024 (published last January), based on a global risk perception survey of 1,500 experts, was remarkably comprehensive in laying out the fears of a rapidly accelerating technologically changing world beset by climate warming and conflict. In the short-term (two years), the top risks ranked by severity were misinformation and disinformation, extreme weather events, societal polarization, cyber security and inter-state armed conflict.