What level of risk does your portfolio carry?

Be it your mentor or your nemesis, risk will be exactly what you want it to be.

You have total control of it and that control is key to successful share investing and trading.

The great thing about trading is that it gives you power and freedom. That attracts us all. In turn to be successful it requires oodles of self-discipline. That’s the hurdle where many fail. To exert the power you have is exhilarating when you succeed. Controlling the downside and letting loose the upside and propelling profits skyward as stock after stock exceeds our expectations, enthrals us. That success breeds confidence. Confidence, not over confidence or recklessness, is a part of good traders qualities. But don’t fear that loss embrace it.

We do have totally control over our risk, yet managing it remains elusive.

Why is that?

Detachment from years of learnt behaviours is necessary for this to work and this can be quite a difficult task to master. Doing what seems unnatural makes us uncomfortable. It seems to go against the grain, as our natural human instincts are often hard to ‘undo’. That’s often why we make the same mistake time after time. Yet some quickly grasp the concept of its necessity and the jump can be easy and almost natural. It takes a certain type of clarity of thinking. Once you do make the jump, as hard as that may be for you, you will soon reap the benefits and then it too will become a natural and automatic process for you.

Taking a loss has to a lot do with our egos and the need to be right and that’s detrimental to good trading. Sweep it aside. Being afraid to take a loss can seriously impact the performance of your portfolio. The opportunity cost of redeploying that capital elsewhere can be very destructive.

Buffett’s number one rule is: “Don’t lose money”
And as you may know his number two rule is: “Don’t forget rule number 1.”

View a market loss as a cost of doing business. Trading is like a business and when it is properly managed income (profits) exceed expenses (losses). And certainly don’t mistake the taking of a loss for a false confidence in your strategy or trade plan. That’s where building confidence is so important.

Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade…he’s confident enough about his ability to win on other trades that he can easily walk away from the position. If you’re extremely confident, taking a loss doesn’t bother you.  – Stanley Druckenmiller