About Taking Risk

Embrace the fact that all security investing comes with some degree of risk, so make sure to choose the right risk-level for you and manage your emotions in regard to the risk.

 

All Investing Comes With Risk

One of the most basic concepts in financial investing is risk. Any and every security investment comes with some degree of risk, although the amount of risk varies. High risk comes with a high chance to win, but also high risk to lose.

People tend to forget that all investing comes with risk, even with investments that we think are safe, such as stock in large and established companies.

Let’s look at two examples from Sweden’s oldest and proudest companies:

If you bought B-shares of Atlas Copco on May 29th, 2015 (share price 257.8 SEK) and sold them on February 12th, 2016 (share price 181.0 SEK), you would have made a 30% loss on your investment in less than 9 months.

If you bought B-shares in Ericsson in February 2000 (share price 81.42 SEK after adjustments for splits and other things that skew price comparisons) and sold them in September 2002 (share price 24.8 SEK) you would have had a whopping 70% loss on your investment in less than 2.5 years’ time.

If you can’t accept, or you feel uncomfortable with, the fact that any and every security investment does come with some degree of risk, then don’t do it. Or at least make sure to implement the risk-lowering strategies discussed further down.

 

Crypto Currency Investing is the Extreme Sport of Investment

If crypto currency investing were a sport, then it would be Wing-suiting, the most extreme sport out there. Wing-suiting is the sport in which guys and gals jump off cliffs in body-suits that make them look like they have bat wings that make them glide through the air (but without a glider)! It’s an exciting experience, but the death-rate is so high that the sport is banned in most places.

Crypto currencies are right now the latest “Extreme Sport” in the world of investing with a high chance to win, but also a high risk of loss. Part of what makes crypto-currency investing like an extreme sport is the high price volatility (price swings) and the fact that they are traded 24/7/365 (every minute of the year).

For example, if you bought Bitcoin on June 11th, 2017 (price 3,018.5 USD) and sold it on June 15th, 2017 (price 2,456.9 USD) you would have made a 19% loss in 4 days. And if you bought Ethereum on June 12th, 2017 (price 394.66 USD) and sold it on June 16th, 2017 (price 155.42 USD), you would have made a 61% loss in just 4 days!

 

If you’re able to handle high risk in your investments, then you might be able to handle crypto currency, but it’s advised to determine this before you get into it.

Ask yourself: Are you the type who can’t wait to put on a wing-suit, or do you call the people who do this sport crazzzy and prefer weekend soccer in the park? When you are out alpine skiing, are you the type that launches yourself into the steepest off-piste chutes, or the type who buys big bulky back-protection mostly to impress on the ladies during the Apres-ski? How does it make you feel to read that you can lose 61% of your money in just 4 days?

Both high-risk taker- and low-risk taker personality types are ok, good and needed in the world. But for your own well-being and sanity, determine which personality type you are and how well you handle high risk before you get yourself into a high-risk space such as crypto currency trading.

If you are not a true high-risk type person, don’t get into crypto currency trading, or just invest a very small part of your total funds in the space. If you are not comfortable with the amount of risk in the space, it will only make you sleep badly at night, create a lot of stress and is simply not worth it. If you still want to get into the space, at least make sure to use the risk-lowering techniques described below.

And if you are a high-risk person, embrace the fact that some of these people crash and burn. Too many wing-suiters meet a sad premature end to life, sometimes in many pieces in other people’s yards. Crypto currency investors could lose devastating amounts of money.

To quote Edward Moy, a professional investor and blogger for 15 years:

“If you don´t know who you are, the markets will tell you.”

 

Manage Your Emotions

If you assessed your personality type correctly and matched your risk-appetite to your investments, you shouldn’t have too much fear.

But there is always some fear involved, for example during a big price-dip. And as any high-risk taker person would tell you, it’s nerve wracking to take large risks! It’s crucial to not let your emotions of fear take over. In order to succeed, you must be able to keep your cool.

So how do you actually manage your emotions of fear?

First off, don’t take on more risk than you are comfortable with.

But there are also ways to minimize your fear of possible bad outcomes from the risks you take.

People who put themselves in the same risky situation over and over again eventually get over the fear of that particular situation.

The best example of this may be getting into a car. The one thing that is most likely to kill us (except old age and diseases) is getting into a car accident. So from a strictly rational point of view, we should all be terrified of getting into cars. Instead of cars, many people are far more fearful of spiders, well-groomed lap-dogs, the flu and other much less lethal things.

The thing is that it’s possible to get too comfortable with taking a particular type of risk if you continuously expose yourself to it, and that is why few people are terrified of cars. It is wise to be aware of this and not go too far with getting rid of your fears.

2017-08-19

Disclaimer: The information in this article, as all content on BlockBull Review, is not and should not be seen as investment advice. The information is for educational and/or entertainment purposes only, so use it at your own risk. It is possible to lose money when engaging in any investment including cryptocurrencies and past performance does not indicate future performance. Any opinions expressed are those of BlockBull Review's writers who are not broker-dealers or advisors of any kind.


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