RISK and REWARD are not always correlated

[thebutton]

According to Benjamin Graham, you don't really have to take a higher risk to achieve a higher reward.

Yesterday, I came by an informative video of the summary of the book "The Intelligent Investor" by Benjamin Graham. What intrigued me the most was when it mentioned that risk and reward aren't always correlated which is very different as what most of us had heard "the higher the risk, the higher the reward." With this new perspective, I have been given a new idea that it is not always the case. There is this quote that I came across in the this informative video:

"Maximum return is not achieved by taking maximum risk, but rather by exercising maximum intelligence and skill."

It might be better for you to watch the video yourself for you to understand it even better. Here is the link to this informative video. As such, I researched further to understand it even better what does it mean. You might find this article helpful.

What does your take in this? How could you apply it in trading cryptocurrencies? Are there any interesting books, articles or an informative video just like what I have mentioned that you might wish to share?

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[Gozie51]

I like to support the aspect of the topic and that is really true but as you said, the saying of traders or mindset is the higher the risk the higher the reward. However, I'm looking on the side where a trader has taken a higher risk and at same time losing the trade. That means the higher risk won't really be profiting when the market takes our order out of profit and giving ur losses. This will
take our balance faster than when we take lower risk for lower gain because it sustains us in the market even with losses, we have opportunity of winning again.

[thebutton]

I like to support the aspect of the topic and that is really true but as you said, the saying of traders or mindset is the higher the risk the higher the reward. However, I'm looking on the side where a trader has taken a higher risk and at same time losing the trade. That means the higher risk won't really be profiting when the market takes our order out of profit and giving ur losses. This will
take our balance faster than when we take lower risk for lower gain because it sustains us in the market even with losses, we have opportunity of winning again.

Base on the article that I had included in the OP, there are instances where the risk continues to rise but the profit (reward) is declining hence it would pointless to go ahead with the risk if so.

What I don't understand with what you said was after the first sentence. Are you trying to say that losses can be a gain to some? If a person fulfilled your sell order which you are implying you had a profit on while the person who bought that exposes himself in a greater risk buying in the price that you think is high and would go downhill, is that what you meant? In my opinion, I think that is true in a sense that it is a part of the market that there are losses made for other to gain from.

[rexxarofmoknathal]

Well, cryptocurrencies have historically been seen as both high risk and high rewards.

But over time they have shown that the reward appears to outweigh the risk... Or maybe that's just the survivors bias talking.

I think that it's becoming less clearly whether cryptos are worth the risk in recent year, since they have not maintained the same meteoric growth seen in previous years.

[Sebas.tian]

Absolutely, but sometimes they correlate. A trader with the needed skills and the technical known how will make a good reward from a higher risk trade and come out safe. Many have seen things differently from others, I have experimented this several times and have came up with good profits at last. During the re-market of cryptocurrency, I bought stellar and one of my friend was laughing my actions but, within some times I made a good returned with over 50% and he was shocked. I took the risk and returned with reward.

[24Kt]

Absolutely, but sometimes they correlate. A trader with the needed skills and the technical known how will make a good reward from a higher risk trade and come out safe. Many have seen things differently from others, I have experimented this several times and have came up with good profits at last. During the re-market of cryptocurrency, I bought stellar and one of my friend was laughing my actions but, within some times I made a good returned with over 50% and he was shocked. I took the risk and returned with reward.

The risk is worth taking if you know from your instincts that a particular project will do good. I guess, you risk on stellar because in your mind, you know this project is worth taking risk for. Because if you do not believe in a project, I don't think you will risk your money on it. So basically, it starts within yourself.

[Quidat]

~snip~

The book I had the opportunity to read it and it is very good, especially for those people who are beginning in the world of investment, it is highly recommended for them, however the point you touch is essential, many believe that by betting a lot they have guaranteed the success, and look down on those who trade poorly and make little profit, what I have learned is that trading should be seen as a business and not a means of getting rich overnight, since that way it fails.

Majority would really fail if they do really have that kind of mindset where treating business just like a gamble where anything had been rushed and doesnt think
about long term prospect.I agree that it always been like this when in talks about risk and ratio matters but i do agree on the sentiment above.

When you are already tying up maximum intelligence and skills then there's really the probability but most of the time even you do apply this two and you have
risk up something big then attaining this goal isnt possible.

[Kemarit]

I think what the author imply in this:

The same is true for investing. Research every stock you buy, every investment you make. Don’t follow the hype, don’t trust talking heads, don’t rely on hunches or instinct, don’t follow one or two simple rules/factors and ignore everything else about your investments. Remember that risk and reward are on a curve, and reach for the top of that curve. That’s the way to win the investment game.

Nothing new here, and as a rule of thumb, you don't need to over complicate things. I think this philosophy has been one of crypto tenet's: DYOR (Do Your Own Research). Which is very true, to minimized risk and to have a chance of greater reward, then obviously, you should do everything at your control and research first and not follow the hype around a project, simply as that.

And this what separates a good investors but an average one, you just pour their money on projects they haven't check out, but just throwing their money and then bitch around when they lost when the projects died, exit scam or just be used for pump-and-dump.

[thebutton]

I think what the author imply in this:

The same is true for investing. Research every stock you buy, every investment you make. Don’t follow the hype, don’t trust talking heads, don’t rely on hunches or instinct, don’t follow one or two simple rules/factors and ignore everything else about your investments. Remember that risk and reward are on a curve, and reach for the top of that curve. That’s the way to win the investment game.

Nothing new here, and as a rule of thumb, you don't need to over complicate things. I think this philosophy has been one of crypto tenet's: DYOR (Do Your Own Research). Which is very true, to minimized risk and to have a chance of greater reward, then obviously, you should do everything at your control and research first and not follow the hype around a project, simply as that.

And this what separates a good investors but an average one, you just pour their money on projects they haven't check out, but just throwing their money and then bitch around when they lost when the projects died, exit scam or just be used for pump-and-dump.

What I really meant was this particular line from the article I had link above:

As risk increases, reward increases, to a certain point. After that point is reached, as risk increases further, reward decreases.

Although there are times that higher risks yields a higher reward but not all the time because when that certain point is reached then the risks continues to rise but the reward decreases. We should be able to identify when we are at this so called "certain point" because it would be pointless to expose ourselves in greater risks but would not give you the expected greater reward.

On the other hand, we can consider the risk and the reward as independent to the other. The thought that I was trying to convey, the book rather, is that the amount of reward/profit isn't always determined by how much the risk there is which is very unlike to what most of the people had believed.

[davis196]

Risk isn't correlated to rewards,but it depends of the niche and the situation.
If we are talking about business in general-higher profits can be achieved with better productivity and effectiveness,not by taking bigger risks.There's a certain degree of risk involved,but the company can lower the risk of bankruptcy by increasing it's efficiency and finding news niches on the market.
If we are talking about trading financial assets,cryptocurrency trading or gambling-higher risk is ALWAYS  correlated to higher rewards.

[maydna]

Absolutely, but sometimes they correlate. A trader with the needed skills and the technical known how will make a good reward from a higher risk trade and come out safe. Many have seen things differently from others, I have experimented this several times and have came up with good profits at last. During the re-market of cryptocurrency, I bought stellar and one of my friend was laughing my actions but, within some times I made a good returned with over 50% and he was shocked. I took the risk and returned with reward.

The risk is worth taking if you know from your instincts that a particular project will do good. I guess, you risk on stellar because in your mind, you know this project is worth taking risk for. Because if you do not believe in a project, I don't think you will risk your money on it. So basically, it starts within yourself.

It could be true because if you don't know or don't have the right information about something that you want to invest, you will have a high risk and you will hard to make a profit. By learning more about what you invest, you will know how to reduce the risk while you will know how to increase the reward that you can get from the investment. And I agree with what you say that basically, it starts within yourself because you decide what you want to invest.

And if we related to trading, if you can have the right analysis, you will have the chance to buy the right coins, and you will have the opportunity to make a profit. But the risk will always be there, and that will depend on how we can analyze the risk.

[Distinctin]

People may be aiming so high and they'll do something to make it possible but one thing they able to forget is the risk that is waiting up there.
High risk is also having big rewards but that wasn't as easy as we know.

Trading is really tough and at high risk compared to just investing. A trader must prepare themselves to lose and to be a loser. Some people will take the risk because they probably know what they do. They are confident enough because they know a lot compared to the average trader and gives them the courage to face the risk.

[joniboini]

On the other hand, we can consider the risk and the reward as independent to the other. The thought that I was trying to convey, the book rather, is that the amount of reward/profit isn't always determined by how much the risk there is which is very unlike to what most of the people had believed.

It would be great if there's a mathematical equation to find where the golden point is. I agree with the idea, but practicing the calculation is difficult. DWYOR and DYOR is like doing a lot of work but you don't know which one is important and should be prioritized, which one is fine if you ignore it.

Most people seems to just throw a bunch of words about risk/reward without necessarily explaining why they do this or that.

[justdimin]

The intelligent investor has been around for very very long time, it is the book that Warren Buffet who is 80+ years old right now getting close to 90 has read and got interested in and talked with him, even took classes from Graham if I am not wrong. Which shows you how old the book is.

The idea is that there is methods to figuring out how much a company really worths, not the worth that the stock market gives it but the real worth because companies do have data to show that, from the revenue to profit to cash on hand to debt and many others, so you can make a calculation on what you think the company worths, and use that to see if the company is actually going for that or under or over, if you see an undervalued company you buy it.

Moreover, Warren mixed that with companies that he thought would basically be always relevant, like Cocacola or Gillette or Washington post and the likes, because they would basically be always around. None of this could be applied to bitcoin.

[carter34]

I think that it's becoming less clearly whether cryptos are worth the risk in recent year, since they have not maintained the same meteoric growth seen in previous years.

I think the presence of bitcoin was really felt in 2017 when bitcoin got to highest level so far with other coins like etheruem hitting above $1000 too. For me here, bitcoin has not given up rather it will be stronger after all economy starts up again.

[dunfida]

Absolutely, but sometimes they correlate. A trader with the needed skills and the technical known how will make a good reward from a higher risk trade and come out safe. Many have seen things differently from others, I have experimented this several times and have came up with good profits at last. During the re-market of cryptocurrency, I bought stellar and one of my friend was laughing my actions but, within some times I made a good returned with over 50% and he was shocked. I took the risk and returned with reward.

The risk is worth taking if you know from your instincts that a particular project will do good. I guess, you risk on stellar because in your mind, you know this project is worth taking risk for. Because if you do not believe in a project, I don't think you will risk your money on it. So basically, it starts within yourself.

It could be true because if you don't know or don't have the right information about something that you want to invest, you will have a high risk and you will hard to make a profit. By learning more about what you invest, you will know how to reduce the risk while you will know how to increase the reward that you can get from the investment. And I agree with what you say that basically, it starts within yourself because you decide what you want to invest.

And if we related to trading, if you can have the right analysis, you will have the chance to buy the right coins, and you will have the opportunity to make a profit. But the risk will always be there, and that will depend on how we can analyze the risk.

When making an investment then it shouldnt really be like gambling.Of course you would need to study everything before you do proceed
because we know on whats stake on here and with that we do need to minimize risk as possible but in terms of investment we do really need
to risk and i do somehow agree that you should be smart and skillful to take more some advantage but it cant really be denied that
the higher the risk the higher the reward.No matter on what we do believe though as long it do benefit us then theres nothing wrong with that.

[gentlemand]

"Maximum return is not achieved by taking maximum risk, but rather by exercising maximum intelligence and skill."

If you're taking a maximum risk without maximum intelligence and skill then you're a prize twat.

It seems rather obvious to me that you need to be bold to benefit. Allocating 0.01% of your net worth to Bitcoin is not going to get a maximum return. You need to apply boldness with foresight and care but your returns will only ever be bunch of what ifs if you pussy foot around. Sometimes you have to throw it down and duke it out.

The main thing I don't see when people are taking risks are their escape plans if it's the wrong one. That's what gives you the ability to fight and benefit another day.

[eaLiTy]

"Maximum return is not achieved by taking maximum risk, but rather by exercising maximum intelligence and skill."

I like the quote but it is not that simple as you always need to have a mindset to make minimum risk and an aptitude and patience to follow the trends, here intelligence is when you are up to date about the entire financial market and understanding and learning about the new market and the biggest example is the BTCitcoin market, people who invested a few thousand dollars during the initial stages made a calculated investment because the risk was minimal and some made a fortune and that is the case with the stock market where they learn about the new upcoming companies and trends and invest in them before going big and that is how you make the maximum return.

[SatsLife]

This is exactly what Hal meant when he said:

So the possibility of generating coins today with a few cents of compute
time may be quite a good bet, with a payoff of something like 100 million
to 1! Even if the odds of Bitcoin succeeding to this degree are slim,
are they really 100 million to one against? Something to think about...


https://www.mail-archive.com/cryptography@metzdowd.com/msg10152.html

[thebutton]

On the other hand, we can consider the risk and the reward as independent to the other. The thought that I was trying to convey, the book rather, is that the amount of reward/profit isn't always determined by how much the risk there is which is very unlike to what most of the people had believed.

It would be great if there's a mathematical equation to find where the golden point is. I agree with the idea, but practicing the calculation is difficult. DWYOR and DYOR is like doing a lot of work but you don't know which one is important and should be prioritized, which one is fine if you ignore it.

Most people seems to just throw a bunch of words about risk/reward without necessarily explaining why they do this or that.

You can check the article and the informative video that I had link in the OP about how they compute to determine their point with regard to risks and rewards. If anyone had the time to invest time to read a book or anything related that would help them especially being as a trader then it would be a good example for minimizing the risk while getting a greater reward. Don't you agree?

"Maximum return is not achieved by taking maximum risk, but rather by exercising maximum intelligence and skill."

If you're taking a maximum risk without maximum intelligence and skill then you're a prize twat.

It seems rather obvious to me that you need to be bold to benefit. Allocating 0.01% of your net worth to Bitcoin is not going to get a maximum return. You need to apply boldness with foresight and care but your returns will only ever be bunch of what ifs if you pussy foot around. Sometimes you have to throw it down and duke it out.

The main thing I don't see when people are taking risks are their escape plans if it's the wrong one. That's what gives you the ability to fight and benefit another day.

The thing is having that mindset that to be bold to benefit isn't really accurate. There are times you need to be bold while there are times that it isn't necessary. People need to work smart. You need to understand your options and analyze if the risk is necessary and if there is a more less risky approach while benefiting you with the same amount of reward and even greater then one should be inclined to choose the latter. The misconception is that people think that reward is always associated with risk but I beg to disagree or rather you can take the words of Benjamin Graham who is also known as the "father of value investing."

Moreover, Warren mixed that with companies that he thought would basically be always relevant, like Cocacola or Gillette or Washington post and the likes, because they would basically be always around. None of this could be applied to bitcoin.

Would you care to elaborate? I am honestly interested because you seem to know more about the subject. Isn't there any idea provided by him that we may use in trading cryptocurrencies or just simple cryptocurrencies in general particularly BTC?