Monday, October 3, 2011

Fear Motivates Everyone




In current business negotiations the most reliable motivator is Fear: fear of missing out, fear of loss, fear of litigation, fear of looking stupid. Whatever the motivator, business decisions always come down to a human decision which is effected by ego.

There is an expansive difference between conservative policy and business leaders who make decisions based in fear. A conservative policy can still include aggressive, bullish moves as long as they include conditions that maintain the conservative policy.

For example, a conservative restaurant owner that has a consistent stream of revenue from Friday and Saturday dinners may not want to take the risk of opening for lunch. If the restaurateur has an outside party commit to leasing the restaurant for lunches then the owner can stick to their conservative risk policy while still making the aggressive move of expanding the business hours. Risk mitigation usually requires the involvement of an outside party of asset.

Let's use another example relative to cash allocations in US bonds. If an asset manager is tasked with buying bonds that meet a specific performance criterion, restrictions can be placed on the bond types to accomplish a conservative policy while leveraging to accomplish aggressive bond positions. If the conditions minimize risk, the decisions are conservative without the need for fear.

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