The risk represents the possibility that our estimations regarding a company’s future prospects, operating performance, and earnings may not materialize according to our expectations. We also assume that the business will continue to exist but different businesses have different economics due to the nature of their industry. Thus, technical measures of business risk measurement are not always sufficient on their own. Technological companies enjoy usually higher price earnings ratios on the average than consumer goods companies because of their higher growth potentials. But at the same time, consumer goods companies have higher prospects of survival in the long run as compared to technological companies. Technical measures of risk may not distinguish between the survival probabilities of two different companies because future is very difficult to predict. If future was predictable, risk won’t exist in the first place. Even Warren Buffet attests to lower survival rates in continuously evolving industries such as technology when he implies that one can be more certain of Coca Cola’s survival in the long run than a brilliant technology company such as Apple.

As Nassim Nicholas Taleb’s The Black Swan Theory indicates, we usually ignore the possibility of very low probability events happening when measuring risk. This happened not only during the recent financial crisis and internet bubble bust but was also a factor in the over-confidence of Long Term Capital Management’s leadership. Similarly, Mandelbrot claims that markets are less well-understood than the conventional models claim and there are lots of unpredictable, random events. Mandelbrot also argued that the events with low probability are greatly underestimated in their probability of occurrence and there is far more risk in the market (Peterson).

Thus, it is clear that a better measure of risk would involve both technical and non-technical analysis. Humans are participants in the financial markets and unlike computers, they are influenced by emotions. Thus, they react emotionally to the events the evidence of which we often see in times of boom and busts when stock prices greatly deviate from values that would be implied by fundamental analysis.