Time, Risk, and the Person Holding the Asset

Anything with value can be separated into two parts: time and risk. Time can mean how long something has existed or how much time it has. Time is an expectation, whether in the past or the future. Risk is a range assigned to every expectation we have, sometimes subconsciously.

In finance, time is measured by interest, while risk is measured by insurance. Interest is what you expect from an asset. If it is a credit instrument, the interest is fixed; if it is equity or something else, the interest—or rate of return—is uncertain.

For every interest or return rate, we have insurance to cover the risk. For a credit instrument, the risk is primarily non-payment, or default, and liquidity if held to maturity. For equity, the risks are the value of the asset and the liquidity of its market.

There are also two sides to time and risk: those of the asset, and those of you. A lot of people in finance seem to forget to assess the latter, which can be a deadly mistake.

They remind me of an occupation at Chinese village fairs: the 掮客. When a farmer wants to sell a cow, the buyer has limited insight into the cow’s quality. How old is it? How healthy is it? So the buyer asks the 掮客 to assess its quality, acting as a sort of warranty.

Some people in finance work the same way. They look at whatever asset is in front of them, assess its value, time, and risk, then move on to the next one—nonstop, like a production line. They never look at their own tendencies toward time and risk.

Original thread on X