Let me start by saying that I am by no means an expert on
O.W. Bunker is, or I should say, was the world’s largest bunker oil trader and was listed on the Danish Stock Exchange a mere seven months ago; however, something went terribly wrong! Due to poor
So going back to the part about risk management being boring. In very simple terms, risk management is supposed to protect you from scenarios you cannot afford to be in (oil price dropping 25% in a quarter) or leave you to focus on what you consider is your core business (selling bunker oil to ships). The price of risk management (again in simple terms) is that you limit your upside as well. If you decide to go without any risk management strategy you will therefore do great and most likely better than competitors as long as the market develops in your favor. However as soon as the market starts spinning the other way you are in big trouble.
This is exactly what happened for O.W. Bunker as they, in a continuous hunt for upsides and larger bonuses, made more and more crazy bets. They had unprotected positions in bunker oil and when the market started to drop they doubled down (or worse) hoping to recoup their losses fast once the market would turn again. Only problem is that the market never turned (and still hasn’t turned). The worst part about it that it was the head of risk management that was leading the charge in these bets!
To sum it all up, risk management might be boring especially because it limits your upside however if you go without it you might find yourself without a job faster than you could ever imagine. Please share your stories on poor risk management or where your risk management strategy failed you.