The value of Risk - Philosophical Thoughts on Investments?
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Here is the main thing I've come to understand...
Risk is absolutely everywhere
Its both a mechanism of valuation and a crucial statistical parameter. The concept not only applies to investments which is the subject that initially inspired this post, but also to almost everything else in life. What I find fascinating about this reflection is that the absence of risk does not exist, it's a fallacy or to be more accurate a logical misconception.
To think that we can completely eliminate risk from a situation is to ignore all the possible outcomes. Even sitting down to write this post has a certain level of risk, not much I will grant you that, but something negative could happen. I could anger someone who would retaliate, a jolt of electricity could destroy my computer (I do live in florida after all), a part of plane could land on my roof, etc... although all these events are highly improbable but, they are not effectively impossible.
Risk therefore is unavoidable and as such, its necessary for anything to exist. But this is not a vote for the campaign of negativity or an invitation for a lack of action, its just an observation. Accepting it and embracing it, is choosing to live within the parameters of reality and that is always a powerful position to take.
Learning to manage Risk
Is possibly the most difficult thing I’ve been trying to master my whole life. Why? Simply because like all other humans who participate of this earth, I too fear outcomes. This is not to say I can't look at things and be logical about them, I'm simply stating that being logical is a conscious effort that I sometimes I don't acomplish.
This might be the most important rule in trading and I would be surprised if there was a successful trader who did not live by it:
“Know your exit, before you enter”
Breaking down this somewhat simple idea normally leads me to overthinking things a little too much. If that is a good thing or a bad thing is somewhat subjective, but for the purpose of this post, It will be enough to say that most of us can’t or won’t follow the wise factualism contained in this one sentence.
Being comfortable with Risk
Should be our ultimate goal, not only when it comes to investments in cryptocurrencies, but all other aspects in our life as well. In my opinion the first thing we need to do is come to grips with all the emotions involved when attempting to asses risk, without allowing a lack of balance and perspective to rob us of positive possibilities.
I fall short of calling the word "fear" my nemesis, but only because being fanatical about this subject might work against my purpose. As someone who has won and lost in numbers that might scare a few and intimidate others, I can say that the word fear carries a different meaning than it used to in my life.
The Fear of Loss.- is somewhat combatible, at least for me, at least right now. Just a few days ago I wrote down some thoughts on the possibility of Steem failing, of our virtual experiment coming to a stop. Not to rehash what I wrote, but as they say the TLDR version could be summed up as "We are all going to live".
The hope of Gain.- Known by its more familiar acronym as FOMO is the one that still manages to drop kick me in the jaw once or twice a month. Taking in a risk, because you fear missing out on the gains or the experience is a fast track to disappointment.
What's next?
I'm not sure, but recognizing my weaknesses is sure to be the correct beginning, the healthy path forward. I happen to agree now more than ever with a little nugget of wisdom @scaredycatguide shares quite often on his mspwaves radio show: "Know your risk level tolerance!"
Today, the markets are red, many a freaking out and I'm actually completely fine. I wonder if this is it, if I finally learned "the lesson". Speaking of lessons... Are you buying something on this dip? Are you staying on the sidelines?
Other posts by yours truly
• For new Steem users - tip 2
• My mother in her special paradise....
• For the new Steem users - Tip 1
• Hello human slave
• Songwriter Shop Talk Featuring - @breakoutthecrazy
Some valuable info here... literally :-) Weighing the hope of gain against the fear of loss is impossible for me; that's why I don't day-trade or swing-trade anymore. For emotional beings the brain just isn't equipped to do these calculations, something I covered in "We Make Terrible Decisions". It is also no coincidence that those most successful in trading on the exchanges and in the capitalist economy in general, often are best described as psychopaths or sociopaths.
This is a crude generalization, but collaborated by a ton of research. The amount in which one is successful at switching off empathy, is the measure of one's succes in this economy and on exchanges. The lingo is clear: buy when blood runs in the streets, bulls make money, bears make money, pigs get slaughtered. You know them all, and you know the pig in there is the poor sap that FOMO'd all his cash away. And those who "short" stocks or coins know they're slaughtering pigs.
In this picture I'm afraid I shall forever be a pig :-)
don't sell yourself short my friend... maybe overtime we will both get a good handle on this.
Also to consider is something known as, FOMO, which is the fear of missing out. Likewise, yes, we are all going to live, but in the very next breath of truth and reality, we are all going to die at some point as well.
Life is inherently fraught with risk, and as such, we have no choice but to embrace such risks, and mitigate them to whatever extent humanly possible.
To close a blind eye to such, and bury one’s head deep into the sands of disillusionment with regard to such, will most certainly deliver the most punishing aspects of reality to those who take this perceived easy way out in “going with the flow” of the disillusioned masses.
Good post, Meno, and good food for thought for those so inclined to feast upon such insights in order to reap the dividends thereof in the long run – and yes, reaping such legacy dividends to our heirs even after the lot of us are all dead and buried!
I wish I could buy cryptos in my Roth IRA, which is all cash now as I wait for that market to correct. Unfortunately most of the rest of my immediate liquidity got hit by the dip, so moving it around doesn't help. I could have some more liquid fiat next week and we'll see how I feel if the downtrend continues.
I spent a decade and a half building my risk tolerance and bringing my emotional attitude closer to my math. It's amazing from this end what an advantage that can be. Worth the work, definitely.
I have not done too much research into this, but I've seen ads on IRAs with cryptos or at least something of the sort.
Risk Tolerance sounds like a class someone could teach, right?
Yeah, crypto IRAs may very well exist, it's just that the brokerage my IRA is at doesn't support them. My non-retirement brokerage supports cryptos but doesn't have IRAs. Well, they sort of do; I can buy a range of cryptos but it's only a bet, I can't actually withdraw them or do anything with them, which seems half-assed to me.
Maybe someone will come along and recommend something better to me.
I will have to give some thought to if I can express some of my lessons in a teachable context, whether that's a post or something else. Mostly I got here just by coping with repeated large downswings and getting better at it as I went along, though.
You know where my mind goes to when I think of this? shock therapy... I know, it might make someone twist their head sideways... but hear me out...
There are people who are afraid of dogs, and the cure is to put them in a room full of harmless puppies... they scream, freak out.. and then realize everything is fine...
Something like that.... i gotta mature the idea..
I had a friend who had a rescue dog who was afraid of cardboard boxes, and the trainer's prescribed treatment was for her to train him to do 100 behaviors involving a cardboard box.
We are on to something... im telling you...
You see the image really caught my attention, you are absolutely right portraying rick with that picture. To make it I life it actually involved a lot of rick, this life itself is a risk, we take a risk by going to school, even giving birth is also a great risk.
I actually follow this brother. I find this piece valuable to life, steemit and cryptocurrency in general. The lecture is well understood I believe a lot of steemians would find more valuable.
life is risk.. it's really that simple.. that could be this post's TLDR... ;)
Excellent your publication on the subject of risk in investments. I think you're right when you say that the risk is inevitable, and much more in the world of cryptocurrencies. But personally I do not want to lose the enthusiasm and the faith that things will finally go well. Thanks for sharing.
I've not lost an ounce of enthusiasm... I'm just more aware of the fact that this is not a steady climb up, its a roller coaster.
So is!
Deep word and thinking. I love it!!..
great theam sir... your writing is awesome...