Tiny but Magnificent
In 1961, The Soviets once built and tested a nuclear bomb 1500 times stronger than the one dropped on Hiroshima. Called Tsar Bomba (king of bombs), it was ten times more powerful than every bomb dropped during World War II combined. When tested, its fireball was seen six hundred miles away. Its mushroom cloud went forty-two miles into the sky.
The first nuclear bomb was developed to end World War II. Within a decade after World War II, the world had enough bombs to end the world —all of it. Countries were unlikely to use them in battle because they raised the stakes so high. It would wipe out an enemy’s major city and the enemy country would do the same to other country sixty seconds later.
Big bombs were mass destruction units and neither country would start a war with a big bomb. So in 1960, The USA built smaller, less deadly nuclear bombs called Davy Crockett, which were less powerful and could be fired from the back of a Jeep. These tiny nukes felt less risky without ending the world.
But this idea backfired. It changed the game for the worse.
The risk was that a country would “responsibly” use a tiny nuclear weapon in battle, starting a retaliatory escalation that opened the door to launching one of the big bombs.
Soviet missiles in Cuba during the Cuban Missile Crisis were four thousand times less powerful than Tsar Bomba. But if the Soviets had launched even one of them then there would have been a “99 percent probability” that America would have retaliated with its full nuclear force, according to Secretary of Defense Robert McNamara.
Small risks aren’t the alternative to big risks; they are the trigger.
Investors also take risk so seriously sometimes where they consider taking the small risks more often than taking big risk at once. A Fixed Income investor is avoiding volatility but taking reinvestment risk and taxation risk so high that inflation erode all the returns generated.
At Shalibhadra, we understand and explain every investor on their Risk Profile where they may improve. Accessing risk is more important than asking for rewards.
Nishit Siddharth Shah