Investing in Czechia: Why risk management is simply essential

Prague-based investor James Pearcy-Caldwell shares hard-won insights, offering lessons, cautionary tales, and strategies for smarter investing.

James Pearcy-Caldwell, the owner and co-founder of Prague-based investment firm Aisa International, part of Aisa Group offering global financial services, in an exclusive series is sharing his expert insights from 25 years of investment experience. 

The seasoned investor and wealth manager in this edition describes the intricacies of assets and risk: finding out what to invest in and subsequent management.

“The first step in creating a solid financial plan is identifying and listing all your assets,” Pearcy-Caldwell says. These typically include cash deposits, pensions, investment funds, and property. “Understanding what constitutes an asset—and what doesn’t—is crucial for making informed decisions about your financial future,” he adds.

“When I speak with clients about their financial situations, they often list their house, car, and bank accounts as their primary assets. However, these assets come with varying levels of risk,” Pearcy-Caldwell explains. 

One might also ask: "Who really controls your home if a bank holds the mortgage? Who bears the risk if something goes wrong? What happens if property taxes increase?"

While these items may be listed as assets, the risks often lie solely with the owner. The reality is that not all assets are truly "yours"—and the responsibility often falls on you, he explains.

Are cars and bank accounts truly assets? For example, leasing a car means you're servicing debt, taking on all the risk, but you won’t own the car in the end, Pearcy-Caldwell says. Even if you do own the car, it has likely depreciated significantly. “Cash in bank accounts loses its real value over time due to inflation, making it a less reliable asset for long-term financial growth.”

Imagine investing EUR 10,000 (CZK 251,000) in a fund with a three in four chance of doubling in value—let’s call this asset "CoinMint"—bought on an unregulated exchange. (These markets lack regulatory oversight or protections.) CoinMint could potentially increase by 500 percent. In fact, there are real-world examples of similar investments achieving such massive gains.

Investors, fueled by the thrill of success, often invest more money in opportunities like CoinMint. There are many who make this error—only they remain silent once they’ve lost everything.

With a portfolio manager, gains made with CoinMint would have been realized. They would have tracked the stock, making adjustments before the bubble burst.

The remainder of an investor’s portfolio would have been diversified, minimizing losses in one area while gaining in others. The investor could have been advised on upcoming opportunities, moving the gains into new investment cycles.

Pearcy-Caldwell says that emotional investing—fuelled by psychological highs and the allure of easy success—often leads to disaster. While markets may rise over time, the path is never smooth, and there will always be volatility.

“A sound, long-term plan, however, will provide the necessary framework to weather these fluctuations and ultimately lead to financial success.”

Upcoming in part 4: How to recognize a market bubble