 Good day, fellow investors! There are three things related to risk and investing that I want to discuss today. The first thing is that risk is very often analyzed from what happened in the last year and not from the actual risk an investment carries. The second point is that if risk is not assessed from what happened in the last few months, then it is assessed from how volatile the investment has been over the last year or few years. So we have what happened in the last few months. What does that tell you about the riskiness of an investment? Nothing. And if the investment went up and down a lot, does it make the investment risky or not? For me, an investment that goes up or down because the market likes to push the stock up or down doesn't mean that the investment is riskier than an investment that was flat. And then the third thing that everybody should know about risk is that it is a function of the price you pay and we'll see how that affects the SAP 500 and the risk of the SAP 500. And the second is if you listen to Warren Buffett, Munger, Seth Klarman and so forth, then you know that risk is defined as the possibility of permanent capital loss and the possibility that you don't reach your expected investment returns, which is the most important thing when investing. For example, you start investing when you are 20, 25 and your goal is to retire well off at 65. If you don't reach that, that's extremely risky because that's practically something that should not happen. You have to be certain to reach your investment goals at 65. Therefore, it is very important how to analyze risk, how to assess risk. And then there is also the importance of how to manage risks. So let's start now by analyzing risk and the three perceptions of risk that I just discussed. A recent Wall Street article discussed how in 2017, Chinese IPO stocks performed very, very badly. Of the 16 Chinese IPOs that went public, then had negative returns below their IPO prices and many of those fell even more than 30 or 40%. If you look at this figure, we have companies that have even lost 40% and if you remember Cudian, a company that we analyzed, it went to 45 and now it is around 12. So it even lost 70% in the period. If you read through the Wall Street article, then you will see that the journalists describe the Chinese IPO environment as extremely risky because there was a so-called fintech bubble where when those companies IPOed, their valuation was at 50 in comparison to the historical 40 for the growth of the Chinese environment and economy. Now, does that mean that those companies are risky or that just the market is perceiving them as risky? And when investors see Chinese IPO stocks that fall 50%, nobody wants to invest in them because what they focus on is the decline in price, not the business they are investing in. Therefore, there is a big difference between the market sentiment towards risk and actual risk from investing in businesses. Let's take a look now at the SAP 500. We can see that year-to-date it went up 19.52%, probably even more when you will be watching this. Nevertheless, if investors take a look at this chart, 20% per year, they will think, many of them, that the SAP 500 is practically riskless. Stocks go up on a straight line and nothing bad can happen. However, if you compare valuations, the current price-to-earnings ratio of the SAP 500 is 25.7, which is 75% more than the historical average. So if you compare the 50-30 relation VIN valuations at Chinese IPOs, then the SAP 500 is even riskier than Chinese IPOs from a historical perspective. But that doesn't matter. We have on one side one chart that is very stable, very little volatility, which is the formal measure of risk. And then we have other companies like Chinese IPOs that are very, very volatile. For me, as the SAP 500 increased 20% in the last year, it means simply that the SAP 500, a diversified play of 500 companies, is just 20% or even more riskier than it was at the beginning of the year, going into 2018. Because risk, for me, is a function of price. The higher the price I have to pay for something, the higher is the risk. And that has been proven in the very long term. The longer term you take to look at stocks and stock prices, you will see that risk is a pure function of price in relation to what you are buying, thus valuations. Nevertheless, the second measure of risk is volatility. And here you can see how it is again at historical lows. Similarly to where it was in 2007, and we all know what happened in 2008-2009. However, if you look at volatility at what has been going on, the SAP 500 carries very, very little risk. So should you use what happened in the last year as a risk measure or should you look at volatility as a risk measure or should you use something more important? And here we come to the most important risk measure of all. How does that investment and the possibility of what will happen in relation to your investment horizon affect your risk for the investment? It's all about you when you invest. So if your investment is five years, there is a big difference in how risky those investments can be in comparison to your investment horizon of 40 years. So risk, when you assess risk within an investment, it's all about you. Not about what happened on the stock market. Not about what's the volatility. It's all about you. What is your financial goal? What is your financial investment? And will that investment give you a good possibility to reach that investment goal without creating the risk that you don't reach that goal? In finances, pretty much over the long term, over your financial lifetime or reaching some goals, pretty much things are really straightforward. If you invest here, you will get this over the long term. However, short-term sentiment, short-term market, whatever happens, can push the S&P 520% higher in a year. But it can also push it down 50% as we have seen in 2000 and 2008-9. So therefore, you have to really see, okay, look at your investments and see how the risk of those investments are in relation to your financial goals. Let's say that you want to invest for your children, for your children's tuition 20 years from now. So you say, okay, I invest over time this amount of money every month and I want to get to that point in 20 years. Then you accept the volatility, the lower stocks go, you're better, you can buy more and you hope that in 20 years, it will be a nice return, let's say 5% per year. If you do it over 20 years, you will probably do well. Reinvesting the dividends and so. However, if you have a lump sum now and you want to use it in 20 years and you want to double it or triple it in 20 years, then investing in something where the risk of losing is 50%, then you would need much, much bigger returns to get to your tripling after 20 years. And that's why risk should be assessed from a personal position. Not at what the Wall Street Journal article says, not at what I say, but you have to see how it fits your investment portfolio. I'm looking forward to your comments, to your investment financial goals, to the risks, what you own and how the risks of what you own are related to your personal financial goals. It's all about your personal financial goals. Someone who can invest in an investment where he can be wiped out but he has the backing, the knowledge, the salary to recover quickly and invest even more in the next play, that is again a good risk reward opportunity for that person. So again, risk is personal and so it should be treated. I'll see you in the next video.