The Caulfield Cup, and 'Risk...'

I know this big big business guy, who has recently been going around with a fairly dismal expression on his face. And after talking a bit with him, it seems he is worried about ‘risk.’

Things have changed in the wider economic world of course, and in the marketplace, suddenly, ‘risk’ is posing greater and ever greater concerns to all the Jedi knights of finance.

 

It's still cash...

I would say it is due in no small part to the pretence of low interest rates at the risk free rate fabricated by the US Federal Reserve Bank; the rewards having now become meaningless versus the baseline of risk and the risk curve rising from that baseline.

‘Risk’ is more natural and easier to understand when the Fed is not interfering with the price of money – but now that we have the unorthodox situation that we do have though, let me approach the subject also in an unorthodox way.

A race horse does not absolutely need to be the winner of any particular race regardless of all the factors in its favour; there are no guaranteed winners in horse racing. And this is why expert horse people talk about things like courage, and bravery, and style, and spirit - even luck too.

A courageous horse is really, the underdog in a given race – to mix metaphors – and when it shows the willingness to push itself, against some big negatives, into the chance of actually winning, horse people say the animal has shown courage. Today, the world’s richest handicap race over a derby distance was held – namely, the Australian Caulfield Cup. And it was won by a very good horse from Japan.

Tiny mare Miracles of Life

Winner of the Perri Cutten Sprint

But I want to talk about the sprint race before the Cup – the Perri Cutten Sprint. And I want to talk about a horse I have mentioned here before, Miracles of Life. This mare is a small horse by comparison to the other horses around it in the races it runs in, and whilst as a two year old it was better able to match strides and mass and power with the other runners all of the same age and also similar size, build, and maturity - as an older horse which never really grew a whole lot bigger than when it was two and three, it shouldn’t really be able to match strides with its present company.

Well anyway, Miracles of Life won the sprint race today, and it did that on courage, and spirit, and power and ability, and sheer quality as a race horse. The fact is it shared the win in a rare situation because it dead-heated for first with a very much older horse called Bel Sprinter - though a horse also with a ton of ability but which has had to come back from major injuries.

Dead-heating is a very rare thing these days because of the camera technology that allows the smallest of margins to be decisively determined. In this case the dead-heat was not only a fair result, there was almost something noble about it; the small mare should have ‘naturally’ gone down with the older reliable horse being the ‘predictable’ winner. She was not really entitled to be anywhere near where she was. Indeed she was entitled to be beaten badly.

But that is what makes horse racing interesting to old hands.

When you are a very wealthy person, and you give your money away to build schools for children, because you already have a diamond watch and too many sports cars and too many women that give you too many problems (all of this I got from a Jackie Chan documentary, by the way), why then your life could get boring and you could easily become jaded and cynical.

Taking a risk is no longer about losing everything you have, once you are an old hand. It’s about the joy of the ethereal consequences in the event that ‘you’ win; or that your horse does, at least.

And the joy is not about the cash; it’s about the meaning of the victory.

So if I were to reduce the story down to clear cut principles about the taking of risk, they would be like this: ‘you are not really entitled to make a million bucks from some venture run over a mere handful of weeks, and all from some miniscule cash investment – but if you are using real courage, real knowledge, real judgement, real bravery, real intellectual ability, and then, should you happen to derive a fantastic result (which was never guaranteed), the thing becomes extremely personally meaningful, and it is definitely worth the money cost and the human effort.’

"Waddya think you're gonna do?
Waddya think yer gonna do?
I tell yer what - don't think; do! Something. Anything.
I don't care what. Just do."

Real bravery, real courage, real knowledge, intellectual ability – have nothing at all to do with anything you will ever see on televised business commentaries, or in research reports from investment banks or stock brokers, or even in academic courses. These things are about you not being at all even entitled to be ‘in the hunt’ or ‘in the race,’ as they say; but a race nonetheless which you compete in. These things are about you going ahead anyway and placing yourself ahead of all of the competition in the hunt for the big money prize.

You need to start in the race. That’s fundamental. Too many who are prepared to call themselves businessmen and even bankers and financiers today, aren’t even ‘in the race’ as such. They are all pontificating on the sidelines waiting for some amazing market opportunity that is guaranteed to be in their favour at no cost and no expense and no risk but with some exciting prospect of reward all the same. That is what false pricing of dollar cost has created in the mindsets of the modern businessperson.

These people are confusing investment markets reflected on exchanges, with business and business risk. The two are totally different things.

And I have never seen a better time for engaging in real business, and a worse time for market investments and market investing.