Risk-Adjusted Return On Capital - RAROC

finance a la shmoop what are systemic and unsystematic risk systemic risks are

just endemic to the market want to invest in the stock market and compound [Plate of vegetable appear]

return your way into great wealth great but then you'll suffer the normal risk

of the system that risk specifically is this yeah best of times worst of times

but up over time the market goes up you just have to embrace the notion that [Man hugging a tree]

there is systemic risk in that in the short run you can buy an S&P 500 index

fund here then lose like a third or whatever of your money in not too many

years but if you don't panic and sell just at the wrong time here right out

the storm and keep going well then you should be just fine by the time you

arrive here so that's risk that is always in the system equities rise and [Equity in the ocean]

fall like the tides or something like that but generally they rise and if you

want to swim in this bathtub well you get used to the turbulence and have an [Girl swimming against the tide]

airsick bag handy all right that systemic risk or systemic risk

what's unsystematic risk well it's bad investors or rather bad investing it's

panicking and selling your stock just when you should be doubling down its

buying lousy companies thinking that they're cheap today but not realizing [Woman runs away from smelly girl]

that they will always be cheap because they're lousy or in a lousy industry or

run by lousy management it's buying into lousy industries that also look cheap

but are dying hello paper and pulp is yeah anyone really think that's gonna be [Paper printing]

around in 20 years all right well it's believing the dreamy hopes and prayers

of future earnings and trusting that there really will be 5 million [Traffic on the highway]

driverless cars on the road in 3 years you know good luck with that we'd love

it to be true but ain't gonna be unsystematic risk is also investing in

bonds for the long-term taking very little risk when taking little risk is

the opposite of what you should be doing when you're a young investor so yeah

systematic and unsystematic risk both exist plentifully and both can bite you [Dog bites portfolio from woman]

right in the portfolio so you got to know what both are and embrace them

for what they're worth