What is risk management?
We are constantly managing risks, and while we don't actually pay attention to them, our actions, in general, are highly influenced by the decision making in regards to potential risks.
It's kinda natural thing that has to be learned. Not sure how to describe it properly.
That brings me to another point. Assessing risks on the markets is not something natural, it's something that has to be learned and understood. You don't become real OG overnight, it takes time, dedication, countless downfalls, and much more.
Mitigating financial risks is a new imperative and those who have the discipline and knowledge will unconditionally end up winning the rat race.
In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given the fund's investment objectives and risk tolerance.
Investopedia
It involves five steps: setting objectives, identifying risks, risk assessment, defining a solution to potential problems, and monitoring.
Objectives
In order to have a vision, you need to set the objectives. If there are no clear objectives it's hard to have a strategy, therefore, you're most likely just apeing in.
Setting an objective is closely related to risk tolerance as it depends on how ambitious you are. If you have a short-term goal of 10x-ing your portfolio you will naturally have to increase your risk tolerance. The higher the risk the higher the reward.
Risks
Before you even start thinking of investing or starting your own business, you have to evaluate all the risks that could potentially stay on your way. The more you evaluate the better the response.
Think of it as doing your homework until you cover every possible flaw in your plan.
Predicting the unpredictable.
Risk assessment
After identifying the risks, the next step is to evaluate their expected frequency and severity. The risks are then ranked in order of importance, which facilitates the creation or adoption of an appropriate response.
Couldn't have said it better.
No further explanation needed.
Defining responses
I mean, the name says everything. If you have a decent response for every possible situation, you are in a much better spot. Being prepared for the worst is what counts. There will be hard times, and if not dealt with properly it might lead the business or position down the hill.
Monitoring
You have to track your efficiency and possibly readjust tactics according to the data collected.
Final Thoughts
The importance of protecting your asset while having the right plan for unfavorable situations is a precondition of every successful project/business. You don't go with a flow, it's the stupidest shit you can do, everything has to be properly examined and added to the equation. Once you do that, enjoy the journey ;).