LOGARITHMIC RISK DISTRIBUTION TO BUILD A STABLE CAPITAL GROWTH FOR ANY BUSINESS OR INVESTMENT

Cristian PÃUNA
Authors registered in the RePEc Author Service: Cristian Pauna ()

Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, 2019, vol. 13, issue 1, 764-773

Abstract: Capital investment, trading, or any business, all are activities involving risk. A proper capital management strategy to ensure long-term profitability is valuable nowadays. High price volatility in the stock markets, unpredicted or unusual economic and geopolitical news, or just hard to manage rare resources or human factors, all of these are instability reasons which can decrease capital efficiency or even cancel the profit over time. To manage the involved risk in any economic activity is a key factor for any manager today. Whatever the risk is estimated, the basic idea is always the same. To ensure long-term profitability, the investor has to save a part of the profit and to reinvest the rest to obtain a stable capital grow in time. The question this paper will answer is how much profit to save and how much to reinvest to produce stable capital growth and sustainable capital efficiency? The Logarithmic Risk Distribution will be presented, a practical method to size the risk level depending on the invested capital, on the used capital exposure level, and on the profit already made in the current business. It was found that the risk level can depend only on these three factors through a function that will provide an exponential capital grow even if the risk is higher than the realized profit. This paper will also include examples to prove the efficiency and simplicity of the presented method. The Logarithmic Risk Distribution is simple and easy to be applied in any business or investment.

Keywords: business management; capital investment; logarithmic risk distribution; trading. (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:rom:mancon:v:13:y:2019:i:1:p:764-773

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