Premium

• 

The amazing story of Kat Cole (President, Cinnabon) has several important lessons:

• Raised by her mother with her 2 siblings on an administrative support role salary, she started selling beer and chicken wings at Hooters, her second job, when she was still in high school. 
• First of her family to go to college, she started working on engineering coursework at the University of North Florida, but dropped out because Hooters was sending her all over the world to open franchise locations.
• At 19 when she was asked to go to Australia on her first assignment, not only had Cole never been out of the country, she had never been on a plane. Her only trip out of Jacksonville until that point was to Savannah, on a girls trip in high school.
• Cole was taking in close to $45,000 a year as a Hooters girl when she accepted her first corporate job with the company in Atlanta, which only paid $22,000. The pay cut was worth it to Cole to get her foot in the door. 
• She rose through the corporate ranks so quickly that that by the time she was 26, Cole was an executive vice president. Mind you, this all is without a bachelor’s degree.
• Three years ago, Cole, now 35, accepted the role as president of Cinnabon, the sweet-indulgence franchise with 1,100 stores in 56 countries and which is approaching $1 billion in annual sales. 

She took her risks; maybe there was a plan, maybe there wasn’t one;

However the rewards she got were exceptional;

Along-with all the hard-work, competence etc., what’s so important is to take an opportunity, even when it looks inherently risky, is what makes the mix interesting.

Often as investors we raise the question of premium for taking the risk;

The risk premium reflects fundamental judgments we make about how much risk we see in an economy/market and what price we attach to that risk. In the process, it affects the expected return on every risky investment and the value that we estimate for that investment. Consequently, it makes a difference in both how we allocate wealth across different asset classes and which specific assets or securities we invest in each asset class.

That a higher return is expected by investors for a higher risk is highly intuitive.

Technically a lot of work goes around calculating risk premium, creating portfolios, advising clients, etc.,

What we see in practice is how often, investor perception plays the biggest role ignoring all models but listening only to the inner voice driven by “Greed” or “Fear” with an “acceptance/ignorance of the risk”.

This intuitive process cannot be assigned a “Value”.

We see the success of Kat Cole, however she might have gone completely wrong in her choices, is a probability that can’t be ignored.

That just shows how the risk-premium so often is an after-thought and not a design.

More often then not its an effective story playing to the right emotions that gets a decision and not the complicated equations that display favourable “risk-premium” and “risk-reward”.

Our challenge always is to separate the emotions or at-least accept that our emotions and our perception of the factors drive our acceptance/ignorance of risk and hence the premium is only an outcome and not a design of our decision.

Till we can understand, accept and remember this-our acceptance the outcome will have a bright chance.