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Opinion – From Grain to Grain: Opportunity, risk and diversification; among them, which is better?


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Nobody likes to take risks. At least rational investors. To take any risk, we expect to be rewarded. On the other hand, many envy or regret having missed opportunities that occurred in the past. However, few understand that before becoming opportunities, they had another name.

Who wouldn’t want to go back in time and buy Amazon shares twenty years ago, in November 2002, when they traded at just $1.12? Today each share is traded at US$ 93.4.

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Investors who bought these shares in 2002 had their capital multiplied 83.39 times. Therefore, if you invested US$ 12,000, you would have US$ 1 million today. This represented an appreciation of 24.75% per year.

When faced with this appreciation, it is clear that it was an opportunity. We are tempted to buy her shares now in anticipation of seizing the “opportunity”. However, the highest probability is that it will not recur. At least in the same period.

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When looking at the past, it seems that there was no risk or it seems to us that it would be low. This is because we know what happened. The risk exists at the time of investment, as we do not know what will happen.

Just as every butterfly is born as a caterpillar, every opportunity is born as a risk.

In this way, we often miss opportunities, as we do not want to take the risk. We expect another opportunity to arise when the risk drops. It may appear, but possibly the potential return will be lower.

At this point, you must be wondering: what about the diversification that was mentioned in the title?

Diversification is the key element to take you to opportunities more safely, that is, taking less risk.

Sometimes today’s risk won’t turn into the “butterfly” that is the opportunity.

In this way, by diversifying, you have a greater chance that some of the “caterpillars” will become opportunities and compensate for those that did not. But even if you diversify, you will have to pay a price.

The price is that, in a few years, your portfolio may not exceed the CDI.

Right now, we live in an environment of high interest rates. Our desire is to sit comfortably at the CDI and wait. Undoubtedly, most of the portfolio should be in fixed income.

However, times when interest rates are high are usually also times when market risk is high. And today, this risk seems even greater due to the uncertainty of the change of government.

For many, high risk is a dirty word. But, that’s just when the opportunity is bigger and better.

Just $12,000 turned into $1 million in the Amazon case I cited. This only occurred because the risk was high. In times of high risk, if you are more conservative, you can put less at risk and still have excellent results. So by putting less at risk, your risk ends up being less.

If you expect the market risk to be lower, to have the same absolute gain, you will have to commit to more capital. Contradictorily, in moments of lower market risk, your risk ends up being greater, as you will commit more capital.

So, take advantage of the risky moments, as many of them will be opportunities in the future, but diversify so that you only have a little bit in each risk.

Michael Viriato is an investment advisor and founding partner of Investor House

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If you have any questions or suggestions for themes, please feel free to send by email.

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