Risk Management and the star equation
There is quite a bit math involved with risk management. To be on the safe side we have to cope with ratios, P&L equations, risk engines, no trade zones, beta, volatility and so on. Most of this stuff is straight forward though and can be done with only a little knowledge of the formulas behind it. But here is an article about something that has not yet found its way into risk management.
Check out this article by TheStreet.com
It might be a little far fetched but if the link between a corporate sponsor and their sponsored sport champions gets so close that their stock price gets hurt when something negative is reported about the star, we need to make sure that our exposure is not to big.
This stands for all relationships depending heavily on a human being. Most of all we can find those relationships in the world of sport, in the NBA, American Football, Indy Car Racing, Formula One and so on.
But this is true in the business world as well. The best example is the stock price of Apple. The company heavily depends on its most charismatic leader Steve Jobs. If he were to leave the company for whatever reason, the stock price of Apple could take a big hit.
What does that mean for our risk management?
Whenever we find a situation that depends heavily on a close relationship between a company and a human being we need to cut our investment by a few percentage points or pull the stop a little closer. How much percent? That depends on how much we have in our account, how many open positions we have, whether we are winning or losing and how close the relationship is between the company and the human being.
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Stealing “ideas” is far different than stealing someone’s developed & Patented technology. The UI of the Mac was an “idea” of HP PARC that was SOLD to Jobs in a primitive form just like Gates bought the system that became MS-DOS from Intergalactic Trading (no fooling look it up). Both were purchased in their raw state for $50,000 each. Gates built the Evil Empire on his purchase & Jobs built the Mac on his. Both had to do lots of their own engineering, time & capital into the finished product & deservedly had/have Patents on that TECHNOLOGY. Contrast this with Windoze, Andriod,etc which are COPIES of Apple Technology.