What is risk?

Let's talk about risk. First, what is risk? Risk is uncertainty about what will happen in the future. In the future, there will be variability as to possible outcomes. We make an investment in a product, we hire a key person, we build a building. It could go well, it could go poorly. Variability in potential outcomes is what we call risk. Consider a commercial real estate investment. I can build a commercial real estate building and rent it out to tenants. The building can be in the heart of the business district where there are many potential tenants. I'm pretty confident that I'll be able to rent space in that building. On the other hand, let's suppose I'm considering building a commercial building in an industrial park at the edge of town. And when I say the edge of town, I mean it's out there where nobody is there yet. There are weeds on the lot. Tenants may come or not, I'm not sure. There's much more risk, much more variability in potential outcomes out there on the edge of…