Like many of you, I received a request from The Institute of Risk Management to comment on a consultation paper they prepared called “Risk Appetite and Risk Tolerance”. Great title.
It’s not my intention to opine on the paper here. I merely wish to confess that I often misuse these two terms much in the same way that I misuse “that” and “which” in a sentence. (Despite having the Strunk and White’s Elements of Style and reading and re-reading the definitions I just cannot retain the explanation when I write; I often have to look it up or just I accept that green squiggly lines of MS Word’s grammar checker are smarter than me.)
Just like the Elements of Style, whenever I get confused about tolerance and appetite I re-read “Ten Common Misconceptions About Risk Management”, which includes clear definitions, that John Fraser was kind enough to send me, but which I cannot publish on Riskczar.com.
Let me close by saying that I know there are many of you out there that must feel the same way about appetite and tolerance and I wanted you to know that you are not alone. I too suffer from this confusion. There. I said it. I hoped that if I came out of the proverbial risk management closet, many of you would think it was okay. There is no shame.
Please know that you have a friend.
Awesome.
And while we’re flaunting taboos…
How about a moment of brief reflection on whether or not our attempt to be precise when talking about risk perhaps overcomplicates the task of managing risk for the people who have to integrate it into their everyday as opposed to having it as their raison d’etre?
(Yikes!)
Tacit knowledge.
Pingback: What is Your Risk Tolerance for Investments? « Personal Finance Made Easy
Pingback: What is Your Risk Tolerance for Investments? « Personal Finance Made Easy