Sunday, November 19, 2006

Lend your money to a city but never to a man.

Lend your money to a city but never to a man.

This is an old Japanese proverb that echoes the sentiments of "Don't put all your eggs in the one basket". Spreading your risk to allow for the fact that disasters and difficulties will always hit some members of a group is generally regarded as a good thing to do. Insurance works on the same principles of shared risk. Unit trusts were invented with the same idea - spread the risk of calamities amongst enough people, and for a small sum you get the opportunity of recompense when a loss occurs

On the other hand, if you are willing to take a risk and back a talented individual you might get spectacular gains that do not have to be shared with others. But if it goes wrong you might very well lose everything. High reward usually involves high risk.

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