In this age of risk aversion, with Treasury Bills yielding one basis point and gold trading above $1100 per ounce, one might do well to be reminded of an age when the understanding of financial risk, such as it was, assumed a different aspect. The modern approach is to avoid risk by asset allocation, if possible, or by hedging, if necessary. The classic financial histories such as John Kenneth Galbraith’s The Great Crash, Charles Kindleberger’s Manias, Panics and Crashes, Edward Chancellor’s Devil Take the Hindmost, or the seminal book by Charles Mackay entitled Extraordinary Popular Delusions and the Madness of Crowds have instructed a generation of financial professionals of the consequences of poor risk control. It is not the function of this paper to gainsay in any manner these marvelous books.
Nevertheless, there is such at thing as opportunity cost. Very little has been written upon the subject of the unwillingness to assume risk. The poet John Greenleaf Whittier once wrote that “For all sad words of tongue or pen, the saddest are these, ‘It might have been!’” It is for this reason that there follows a comparison of the careers of Carl Laemmle and Adolph Zukor. Both were founders of the American movie industry. Most financial analysts would agree that movie production is, even in the best circumstances, a rather high risk undertaking. Though he was the founder of Universal Pictures, Laemmle is entirely forgotten except by movie historians. Adolph Zukor might be known to students of business history as the founder of Paramount Pictures. A comparison of the approaches taken to risk and risk aversion by these two men is instructive. The ultimate thesis is that, in many cases, risk avoidance is actually a form of risk.
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