Once you began analyzing your investment items base on risk factor, you will have to focus on the golden rule of investment – cut loss. One of the most devastating habits is to allow yourself to override the cut loss point (or not having a cut loss plan at all). Even if you have the best investment strategy in the world, you won’t succeed if you don’t follow its rules. Insist on lowering your loss according to the plan will allow you to increase your profit. This is the only way to long-term, consistent profits.
I always like the analogy of keeping a garden. The beautiful plants you deliberately plant are always accompanied by weeds. It is very natural. If you are disciplined enough to care for them everyday, you can clear them very easily because they are just baby weeds. And your plants will not be adversely affected.
On the other hand, if you allow the weeds time to grow by ignoring them and relaxing yourself too much, their strong surviving ability will amaze you. There will always be excuse for saving the work for tomorrow. ‘It is too sunny today. The weeds is too little and I will do it altogether later.’ Guard your heart for from it overflows the fruit of life.
Losses in investment accounts must be treated like weeds. They must be dealt with when they are still small. Then your account will always stay healthy and growing.
We measure possible future profits of an investment event with the Expected Value because probability or risk is taken into account. There is always risk and risk means possibility of losing. Deal with them when they are vulnerable instead of waiting them to grow big and crush you.
If you choose to handle the many small losses that appear day by day, then you will not have to tell people about how unlucky you are when you lost the whole sum of money in an investment event.
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