The Right Way To Take Risks – In Business And Life by [email protected]

Karen Firestone: The right way to take risks in business — and life.

The truism “nothing ventured, nothing gained” is an often heard phrase. But risk-taking must be balanced with prudence. Karen Firestone, chairman, CEO and co-founder of Aureus Asset Management, knows how to strike that balance. She lived it herself — leaving a fund management job at Fidelity Investments after 22 years to co-found a wealth advisory firm in 2005. It worked out: Aureus now has $1.5 billion under management. Firestone wrote about the topic in her book, Even the Odds: Sensible Risk-Taking in Business, Investing and Life. She discussed her book on the [email protected] show on Wharton Business Radio’s [email protected] show, which airs on SiriusXM Channel 111.


An edited version of that interview appears below.

[email protected]: Before we dig into the book, I want to start by pointing out part of the title: the concept of sensible risk-taking. How much of a challenge is that today, whether it be in business or in people’s personal lives?

Karen Firestone: Well, risk-taking is a factor in everybody’s life, all through your day, every single day, and we may be aware of it or not. Being sensible about it is another challenge, and I think that what makes it even harder today is that when people are under increased levels of stress — which we all are — we tend to act more impulsively, and we don’t think things through in a logical or sensible way. Given that I spend most of my work day, and a lot of my time, thinking about risk-taking professionally, it’s sort of a natural outgrowth that I think about risk [more generally –] the way that we deal with it in complicated fashions and ways to be more sensible.

[email protected]: It seems like, especially since the recession, we are in a period where the concept of understanding risk-taking and actually taking that risk has been heightened.

Firestone: It’s amazing, if we think about how disturbing the news is. Just think about the last few weeks as we were heading into the period of the political conventions. You think, there’s so much upheaval, there’s violence, there’s distress. How can we possibly, for example, make an investment? How can we possibly put money into the stock market when we see all of this happening around us? Yet what we talk about here at our company lately is that the market seems to be one of the few, in a sense, calm locations for thought and reasonable consideration of what to value. The market has gone up 300% since the bottom in 2009, and it has climbed what we think of as the “Wall of Worry” [or overcoming a host of negative factors.] If people hadn’t sold stocks in 2008, just held on, they would have hit bottom, and then they would have risen steadily for all of these years.

“The market has gone up 300% since the bottom in 2009, and it has climbed what we think of as the ‘Wall of Worry’.”

We’re going on nearly a decade of the market going up, and I would say that economies continue to operate, people continue to need goods and services, and we just calmly think through it. … We’ve added millions of jobs since the bottom of the recession. The U.S. dollar is strong, and this country has become the safe haven for investors all around the world to put their assets in as well. That can be, in a sense, a way to calm people down who are afraid, because it’s very scary when you think about the risks that we are constantly confronted with and bombarded by in the news, which are disturbing and do make us pause. But we have to be more calm and considered about investing and think, “well this might not be so bad.”

… I think it’s a testament to the ability of economies, and underlying commercial endeavors, to keep going through this. We persevere, we continue to go to work, and people have to be aware that risk-taking is part of their experiences. Your experience, mine, everyone around us. We can’t be afraid. We can’t be hiding in a shell, thinking “I don’t know what to do, the market could collapse and I could lose 50% of my money!” This is what keeps people from investing, and so their choice is getting 0.06% on their savings account. That’s the option. Is that good? I mean, I don’t think it’s so good.

[email protected]: With the concept of risk-taking, you have to look at it from the business perspective, you have to look at it in your investments, but you also have to look at it in life.

Firestone: What I tried to do in my book is describe these tenets of risk-taking that apply across business and investing in life. There are four tenets: right-sizing the risk; right-timing; relying on knowledge and experience; and remaining skeptical of promises and projections. Those apply to investing tremendously. I think all the time about the right size of the positions that we take in companies; whether it’s the right time, because timing of when you buy or sell is critically important. How much we know about the investment, and then being skeptical about what we hear from Wall Street or what we might hear from the companies.

But if you think about how we apply those in our life, take just some simple examples.

Right-sizing: If you’re going to buy a house, you want to make sure that you’ve got a house that’s the right size, not too big, not too small. Otherwise, it will be a mistake. It’s getting a mortgage that’s of a size you can handle; the size of your investment in that property is really important. So that’s something that everybody deals with involving size, whether you’re buying a house or you’re renting a place.

Right-timing: You definitely don’t want to open an ice cream shop in November, if you have a choice. If you’re living in the Northeast, or you’re living in Philadelphia, you would rather open it in April or May. Timing affects many decisions, no matter what they are. When you’re getting married, when you’re getting engaged, when you’re having children, timing is just a factor. Sometimes it’s more important or less, but it’s definitely a risk factor.

“There are four tenets: right-sizing the risk; right-timing; relying on knowledge and experience; and remaining skeptical of promises and projections.”

Relying on knowledge and experience: You don’t want to, for example, take on an intern at your show if that person has only worked in an art gallery, and they say, “Oh, but I’m really, really interested in broadcasting and radio” but they’ve shown no interest before. Is that something you should know about or not? I would say yes, because it’s a risk that you hire somebody who isn’t capable and doesn’t show any aptitude. So you’re relying on knowledge and experience.

Remaining skeptical: If you’ve got a buddy and you’re out to dinner with him, and he says, “I’ve got a great new idea for a restaurant and bar that I

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