No Risk No Gain? Fortune Favours The Brave?

Saw these comments posted on Star Business. Fortune favours those who dare

• Fortune favours those who dare
  
  Making a Point - Comment by Jagde Singh Sidhu
  
  Companies with the capacity to take on a little more risk can experience a good payoff
  
  IF there is one industry that is not short of money during these tough economic times, it is sports. Sure, Formula One is trying to impose spending limits on its teams but big money is being spent in other sports in the pursuit of success.
  
  And it’s being spent in the world’s biggest sport like never before.
  
  Real Madrid grabbed the headlines and imagination of football fans around the world after it broke the world transfer record twice to buy two of the biggest names in the game. Having spent US$94mil to buy Kaka from AC Milan, Spain’s most decorated team then splurged US$131mil to secure the services of Cristiano Ronaldo from Manchester United.
  
  Indications are that the spending by Real Madrid has not dried up and the repercussions and reactions on and by other teams will be pronounced too during the summer transfer window period.
  
  Drawing similarities to the corporate world, investments by companies during these trying economic times too are continuing but understandably, have not kept pace with the football teams.
  
  Yesterday’s papers reported AirAsia X has placed an order to buy 10 Airbus A350 XWB at a cost of US$2bil. Nestle is investing RM860mil in the region, of which the bulk will be in Malaysia to grow the halal component of its food business.
  
  Then there is Vale’s RM9bil proposed iron ore hub in Manjung, Perak. All these are good signs of confidence in not just Malaysia but also the businesses they operate in.
  
  Investing for growth is something many companies have been doing in the past and in Malaysia’s case, much of that has taken place in other forms as many of the countries’ large corporations have invested vast sums of money to build businesses and operations beyond our shores.
  
  From buying foreign banks in Indonesia to erecting high-rise buildings in Vietnam, companies have spent in search of higher returns and better business dynamics than Malaysia at this time can seemingly offer.
  
  Regardless of those examples, overall spending now by Malaysian companies is understandably lower as they adopt a cautious stance over their finances. However, they can do more.
  
  The balance sheet of corporate Malaysia has improved leaps and bounds in the decade since the Asian financial crisis. Malaysian banks are in great shape and companies have been generating plenty of cash until recently. That cash generation capability might be wounded but I doubt it is broken for many companies.
  
  And companies should take advantage of the lull in the global economy to position themselves for the future.
  
  Hoarding cash is not going to grow revenue or increase market share and in the case of Real Madrid, spending when others might not have the appetite to do so, will help narrow the gap or leapfrog over your competitors.
  
  If they have the capacity to take on a little more risk, they should. Like in the case of Real Madrid, the payoff will surely be great.

I am left so confused.

Companies with capacity to take risk.

I have no problem with any company taking risk. I, in fact, do take risk when I invest in a stock. There is no such thing as a risk free investment. However, I have to be responsible when I take risk.

And what's the meaning of being responsible when I take risk?

Well, it's utmost important that I make sure that I can afford the money I am risking. I cannot be borrowing money from any Tom Dick Bank and risk all the money on the stock market and use the reasoning of 'no risk no gain' for my bet.

Why is this not responsible?

Well since there is nothing as a risk free venture, there is always a chance that things could go indeed go wrong, which means I could lose. And what if I lose and the money lost is borrowed money, money which I do not have in the first place? How then?

Take Real Madrid.

LOL!

Well their massive, insane transfers could well work. But what if it doesn't? Didn't their glalactico plan failed big time the last time and didn't Perez got sacked for it? And how ironic that they are venturing the same route again. So how good a venture is this? Just because they dare?

AirAsia X.

LOL!

I have no problem in their buying of new Airbus. However this venture is a venture based on money that they don't have! Massive insane funding is required!

Look at AirAsia's balance sheet.

Compare now versus when it first listed.

Can anyone say that it's balance sheet has improved leaps and bounds?

Taking risk is no problem lah.

You got money and you want to risk it, no problem but if you don't have the money and you need to take the risk via massive funding, that's rather irresponsible in my flawed opinion.