How To Sign Hawaii Banking IOU

How to industry sign banking hawaii iou

[Music] [Music] systematic risk versus unsystematic risk what does it mean ladies and gentlemen on today's episode we're going to talk about systematic risk versus unsystematic risk why it's important now the thing about it we all know with anything with any investment you're always gonna have to deal with risk and when you deal with risks ladies and gentlemen you know that when you invest well you know you're gonna have to have some type of risk but not all risks are the same some risks can be diverse or what diversified away from versus some risk cannot be diversified away from so in this episode we're going to talk about unsystematic risk and systematic risk first we're going to start off with systematic risk we're going to talk about what it is um ways to diversify away from it well not systematic but unsystematically well but we're going to start off with a systematic risk then we're going to get into unsystematic risk we're going to give you examples of each and then we're going to talk about in the unsystematic way how you can diversify away from it why is this invest important to investments because sometimes with investments i used to always think oh you know you got to risk something in order to make something but sometimes there's something called dumb risk and risks you don't have to take and risk that you can mitigate right so without any further ado ladies and gentlemen let's go ahead and jump straight into it so systematic risk when you look at your systematic risks these are risks that cannot be uh diversified away from this is kind of like some sort of thing of just the price of doing business so for prime example you use the acronym called prime which is p p-r-i-m-e prime right p-r-i-m-e so the first one is purchasing power inflation purchasing power is considered inflation right when you look at purchasing power purchasing power is the ability to be able to buy something in the future for prime example you have a hundred dollars a day think about how many you know if you go to walmart and you you brought groceries for 100 bucks look how many how much stuff you could have got into a shopping cart versus if you take that same hundred dollars and you went back to 1995 or 1980 with that same hundred dollars you probably will be able to purchase more things so over time the same amount of money is purchasing less and less this is considered purchasing power risk something that you can't diversify away from inflation risk it's another one that people love to say is something that you cannot um diversify away from it's just part of doing business it's a systematic risk the next one the r is reinvestment risk so for prime example i own coca-cola stock coca-cola stock pays a dividend i don't know when coca-cola stock is going to pay a dividend dividends not guaranteed but it can reinvest at a great time or a bad time you don't know so when you reinvest your money or you have your dividends reinvested you don't know whether they're going to be reinvested that's just a part that's a risk that you just take in doing business the next one is called interest rate risk the i the p was purchasing power the r was reinvestment the i is interest rate risk we don't know what interest rates are going to be it's always quoted with warren buffett saying that if he had any uh inkling of what interest rates if he had any information that he could know in the future it would be interest rates that's the most powerful thing we don't know what interest rates are going to be our interest rate is going to rise the interest rate is going to fall right now interest rates are at a very very low who controls the interest rates who controls interest rates is the fed chair this is the fed chair is uh jerome powell the i which is interest rate the interest rate risk is the risk uh that interest rates will change in the future interest rates going up and uh when you when you're a bondholder and you have interest rates going up what happens right as interest rates inc uh increase in your bondholder that's not good right versus when interest rates are dropping bond rates right so you have for prime example look at the people who own a house for right now you send a lot of people refinance and people have the ability to refinance because interest rates continue to drop and every time the economy starts to take a decline part of the stimulus package is to lower interest rates so we don't know what interest rates are going to be in the future are they going to be higher are they going to be lower because if i knew interest rates are going to be lower in the future i may be interested in taking an ingested interest rate loan versus since i don't know what interest is going to be i pick a fixed interest rate so interest rates control the price that we get on cars the price we get on credit cards all sorts of things right the next one is market risk when you're investing you have to deal with market risk we don't know what the market is going to do you know you see the market take who would have guessed last year in 2020 that would have seen a big pandemic hit and the market take a decline we didn't know this information right so since we didn't know this information this makes it extremely um it's a risk that we can't diversify away from the next one is exchange rate risk exchange rate risk we don't know what currencies are going to be exchanging for prince why do i care about exchange rate risk most of your top companies in america are doing business overseas so for prime example if you make uh let's say if you're selling a product and pay and pesos in mexico you you earn let's say nike earns a lot of money let's say a thousand dollars and pesos not a thousand dollars in pesos let's say they earn a thousand pesos a thousand a thousand pesos what does it refer to in dollars the exchange rate risk is always changing we don't know as the dollar gets stronger currency tendency have a tendency to get weaker and as the other currency get weaker the dollar has a tendency to get strong so you don't know if the dollar is going to be strong in the future or weaker in the future that's an exchange rate risk prime p-r-i-m-e purchase power reinvestment interest rates market and exchange you can't diversify away from that now we want to get into unsystematic risk unsystematic risk is a risk that um that you can diversify away from that you can limit now i don't have a pretty acronym for unsystematic but we're going to go some through some of the unsystematic risks now political risk when you look at political risk the political risk is you look at a country like venezuela or you look at detroit michigan or you look at orange county california detroit michigan d fought it on his debt venezuela we don't know what's going on over there their inflation rate is through the roof and you look at orange county orange county is a company not a company but uh not a company but let me let me take that back that's what that's due to that's a different type of risk let's stay with international when you invest internationally you have a political risk and what i mean by that let's take a country like venezuela or let's take a country like china right we all know last year the topic of discussion before the pandemic hit was everybody was all concerned about trade trade wars tariffs tariffs getting raised president trump wakes up he says hey i'm going to put a tariff on chinese oil i'm just hypothetically speaking but he will raise uh tariffs at any time so that means that anytime the country is anytime a country whatever they are imported into our country to our country their price just increased when you're looking at that that is very very that's a risk that you take when you invest overseas political risk let's say over in china or a country like iran or something like that where the government could be overthrown jessica just wake up one day and say hey we want our president out of office we don't want you to be our president anymore they can't overthrow the government that's considered a political risk ladies and gentlemen so when you invest overseas you're investing international that's the political risk but the good news is that this is uh unsystematic right unsystematic meaning that you can diversify away from this sort of risk how can you invest how can you diversify away from this and sort of risk this type of risk is not investing overseas or diversifying your portfolio not only having all your money with one company but putting your money into other companies right so with that being said hey don't put all your money into china you can put some of your money in america and china or spread it between asian companies european companies things like that you can diversify away from political risk by investing in two different countries right the most solid crazies it may seem to some people the most solid political country is america right so now the next one you have is business risk business risk the risk of just doing business what's an example of this just think about it who would have thought in 2019 as we will celebrate new year's that we will see companies like california pizza that would disappear who would have took the bet last year that zoom would be worth more money than all the airlines combined market cap wise speaking right we've seen zoom become a primary company over airlines airlines as everybody know the travel industry has been taken taking very hard to take a massive hit but whoever took that bet last year holder took the bet that restaurants would be having a hard time this year many people would ever saw that coming who would have bet that would have had an airborne pandemic that would pretty much derail our our economy here in america many people took that risk ladies and gentlemen that's the risk of just doing business you don't you do not know who would have known their restaurants who would have known that um you were talking you were talking about 20 years ago who would have known that phones would just take over the world that people would be watching movies uh via phones so by the business risk people back then people said hey guess what prince we're always going to drive vehicles we're always going to need oil new news flash now we're moving more and more to electronic vehicles 20 30 years ago people said prince will always want to watch movies blockbusters would be a great investment movie theaters would be a great investment it was 20 30 years ago who would have thought that people would be sitting at home from the comfort of their home watching movies online via the internet or via their phone we're still watching movies but the way we watch movies are totally different looking at companies like uber and lyft that just came out of it a big name for themselves ladies and gentlemen this itself is business risk the risk of doing business you just don't know what's going to happen when you're doing business the next risk but you can diversify away from business risk by putting your money into different sectors for prime example you may have money into the technology sector you may have money to real estate you may have money into uh real estate you may have something to energy you may have money energy real estate uh groceries and things like that so think about it we're always going to consume groceries we're always going to eat food but who would have thought would have been buying our food here offline so this is how you can diversify from business risk by diversifying via sectors as you see companies like zoom has had a great year companies like airline lines have been struggling travel industry has struggled but if you are diversified you can diversify away from business risk so first we talked about political risk and how to diversify away from it then we just discussed business risk and how diversify away from it the next one is called financial risk financial risk most people do not know what financial risk is because it's under my opinion belief about 90 to 99 95 and 95 95 to 98 of investors do not know how to read financial reports or read financial reports i won't say don't know how to read most finance people who buy stocks they consider researchers by talking to a couple friends and family looking up a couple articles online and say hey i know this company i've done research how many people have looked at the 10k report the 10q report looked at the liabilities of the company knows the total debt of the company knows the debt the equity ratio the asset to liability knowing what the network of the company is shareholders equity most people do not know that so financial risk is taking on a lot of debt and being able to pay it back and grow your business some companies are experiencing a lot of growth from borrowing a lot of money much money so that requires you to know the debt equity ratio in order to build a debt equity ratio you probably unless you got some type of software that requires you to open up a 10k report a 10q report something that most financial uh most people that invest don't do professionals know this or should know this that you should be able to look at financial risk so a company me borrowed a lot of money to start a company um yes my company is growing i'm doing a lot of great things but my ability to be able to pay that money back is a financial risk when you're dealing away with them that risk can be diversified away from by knowing companies knowing doing your research and knowing companies that have allowed nor their cash to uh equity ratio knowing that debt to equity ratio knowing is the ability being able to evaluate the company's ability to pay away pay away of his debt so for prime example if i know a company has a million dollars in cash but also i know the debt is only a hundred thousand dollars i can say hey this company it has enough current assets to be able to pay off his long-term debt at any time that's my ability to be able to get away from financial risk or diversify away from financial risk the next one these kind of go hand in hand default and credit risk so when you purchase a bond you're essentially purchasing debt from a corporation it's an iou from a corporation so you have corporate bonds you have government bonds you have you know cities issue bonds the ammunition bonds but it's pretty much my corporation is saying that hey let me borrow a thousand dollars and i'm going to pay you back with interest in the future that's all a corporate bond is so you look at a corporate bond um when you look at a corporate bond uh that's pretty much what it is so a corporate bond is fine they're saying hey let me borrow a thousand dollars and i'll pay you back in five years and i'm gonna give you four percent over five years sounds like a pretty good deal i invest a thousand dollars i'm gonna make that's about what forty forty dollars or whatnot over the next five years oh pretty cool deal the deal is great until unless that company defaults meaning the company goes bankrupt going back to the companies are uh the entity entities that i mentioned earlier looking at detroit detroit defaulted on 600 million dollars worth of bonds back in 20 2013 if i'm not mistaken so that itself a bond that's the default risk somebody you let somebody borrow money and they lose their job they don't have any income they default on their loans default or a credit risk the credit risk is that the person you lend money to can't pay you back the bank lend me money to purchase my car i'm making the car notes i'll find a danny until i can't pay back the bank that's when it becomes an issue that's the default and a credit risk how can that be diversified away from that can be diversified away from reading the knowing the all bonds just like i have a credit score individuals have a credit score so does uh corporations you have bonds that have looking up the if it's a grade a bond bond triple a bond triple b bond they're different grades for bonds so the greater ability that the company can pay back is debt the greater the the less interest is going to pay and the greatest score the bond is going to be but by doing due diligence you can diversify away from that by investing into different types of bonds not buying just only corporate bonds but you coul buy corporate bonds followed by government bonds followed by long-term bonds short-term bonds you can buy different turns of bonds so if the city if you're if you have a bunch of community bonds municipal bonds let's say the city defaults on debt that all your money is not tied up into a city you can diversify between grades and also different types of bonds that's how credit and default risk can be diversified away from the next one is event risk event risk who remembers the bp oil spill remember we just woke up one day bp oil just spilled a bunch of oil in the middle of the ocean and nobody knew what happened and you know bp all started to crash and everybody questioned all the fracking and oil prices started to rise that's an event you just can't help just like the pandemic just came out of the blue and hit the market and something like that would happen again and again but it's a black swan event so how can you stop this from happening how can you prevent this from happening you can't prevent it from happening um what you're going to be able to do you can diversify away for prime example if you had a company like bp that um experienced a very hard time uh what i mean by experience a very hard time that had an oil event that had a big event that happened if you're diversified into other entities of different companies your money's not tied into one place so you can diversify from an event event we don't know when it's going to happen it's a risk who knows reputation tomorrow they could come out and say hey coca-cola has been stealing money and take a big reputational blow hit that can drop to stop you don't know what can happen but to stop that from happening you can diversify across the board all right now that's so uh that's the risk we just spoke about systematic risk before earlier the systematic risk is risk that you just it's just a risk of investing you really can't diversify away from that we use the acronym prime p-r-i-m-e p band purchasing power are being reinvestment risk high beam interest rate risk and m been market risk and even exchange rate risk we just can't really diversify away from them that's just a part of doing business now we talked about unsystematic risks unsystematic risk is risk that you can diversify away from we talked about political risk you can diversify away from political risk by uh spreading your money across different countries so for prime examples some companies countries can be overthrown so you don't put all your money into one particular uh one particular country now another way i like to diversify away from political risk is you diversify away from political risk due to their ability to uh what you call it due to your ability to um you can find something that both republicans and democrats agree upon that's domesticated so a country a company for prime example this here in california that both republicans and democrat agree upon but prime example i can limit my political risk on airline stocks because both republicans and democrats believe that airlines should get a second round bailout so since both of them agree upon it that limits my risk of one just jumping up on the blue and saying no or whatever the case would be that's just an example i'm using hypothetically another one business risk you have the risk of just doing business who would have known that restaurants would uh who would have known that drive-throughs would become more popular and steak houses would have a big issue in 2020 who would have took that bet in 2019 not that many people but things happen whoever took the bet that zoom would be worth more than all the major airlines combined that's just a part of doing business now you look at the risk of financial risk the risk you have a financial risk the risk that the country company would be able to pay back his money these are all unsystematic things we talked about defaulting credit we talked about event risk and one risk i forgot liquidity risk liquidity risk is a risk uh unsystematic risk liquidity is a risk of you being able to convert your your investment into cash in a short amount of time for prime example i have an emergency my water heater just went out i need to i need this cash right now so i can pay somebody to come out here replace my water heater now if my money is tied up into a let's say coca-cola stock i have to sell the stock then i have to wait to the money clears then i have to transfer it wait till it gets in my account that's liquidity or if i i took my cash and i put it inside of a home i brought a house or i brought a real rental property or brought a piece of land how long would it take to for the land that i owned how long would it take for that land to convert to cash that's liquidity risk so how fast can your money convert to cash that can be used to pay debt or to buy inventory to become an accounts receivable to become a profit so that's liquidity risk any event risk we talked about we don't know what can happen at any time um well let's talk about ways to diversify from liquidity risk is hey have some of your money in a savings account have some money in a money market account maybe have some in the bonds some in the stock or whatnot so don't have all your money tied up into long-term investments that's a liquidity risk event risk is the event that anything can happen at any time like bp oil can just a major oil spill can just happen at any time you diversify away from that by buying different sectors well ladies and gentlemen that's going to conclude today's topic i hope you guys and girls took something away from it it was a very top a very uh i would say complex episode for me today had a couple technical difficulties but i'm glad i was able to get in here and get this uh taken care of for you guys and girl guys and girls across the globe uh we talked about systematic risk unsystematic risk uh risk you can't diversify away from versus risk that you can diversify away from i hope you took something away from it and to the next video podcast cartoon book or whatever else craigslist you see me doing around the globe peace be safe i'm out and thank you you