Notes on "Risk"

Strategic Risk

Project Risk (failure rate)
- what is the failure rate of our blogs?

Customer Risk
- know what they want
- track changes in customer, be ready for changes

Transition Risk (less frequent)
- A change in the world (analog to digital)
- Bet on both (desktop and server)

Brand Erosion
- Brand, Product, Business Model

The value of the infrastructure. Commercerialize the internal.

1. Systematic Exposures - buying the index funds
Macro Funds... predict the changes.

2. Forcast cashflows and risk parameters.
certain stocks and assets are cheap compared to others

3. risk transfer
hedging, sell risk to the speculator
speculator - carry risks forward and earn rate of return
hedgers - know they are paying speculators
farmer transfers risk to miller (stores grain)
- general risk - the market on wheat could crash
- specific risk - needs of the bakers
Equity is a cushion to risk
Hedging might be cheaper to use than equity.

4. liquidity
liquidity shocks - not everyone can sell at once... that lowers price, good to buy
liquidity is the price of inventory (the ability to move it to cash)
transfer costs mean you have to have a long horizon
liquidity is the value of a put option
(cash is the most liquid)

The efficiency of capital.

Chaos Theory
The more knowledge you have, the slower you change. You can become myopic.

Innovation occurs from large shocks because the old ways fail, and you have to make new models.
The process evolves until a shock occurs. Better teams mean faster response times to the shocks.

Build and maintain teams.

Gather bits and pieces of information, and know when to stop and build a model (deduction). Don't gather too much... you don't want to get stuck just gathering or you never innovate.