Read? Investing Made Simple by Uncle8888 (23)
Emotional tolerance for Risk/Reward
In life, we will develop good and bad personal and social habits. We will try to keep good habits and reduce bad habits as far as we could. Similarly, in investing we will develop investing habits. Some investing habits that we have developed may actually hinder us from achieving our long-term investing goals.
Our investing habits are likely to be shaped by our emotional tolerance for Risk/Reward and our pain threshold for sitting through paper losses. It is harder to judge whether such investing habits are good or bad as they are often quite subjective and personal.
So it is up to every individual investor to seriously think about it; honestly examine and evaluate themselves. They can measure and benchmark their investment performance to others in their close investment community to do sanity check and ask themselves. Are these investing habits helping them or hindering them?
One way to know our emotional tolerance to risk/reward is to examine our current portfolio holding. What is the total unrealized losses vs total unrealized profits in the current holding. Are we sitting on too many counters that have unrealized losses of more than 50% and few counters of unrealized profit of less than 20%.
So it is quite clear that investor has low reward, high risk emotional tolerance with relatively high pain threshold of paper losses. He is quick at taking small profits but good at keeping paper losses and slow in cutting losses even he is lacking money to invest.
Next, we may want to look at CAGR or XIRR since investing. A low single digit or negative CAGR or XIRR will tend to confirm it. A low reward, high risk emotional tolerance with relatively high pain threshold may actually hinder you from achieving your long-term investing goals.
You may want to seriously examine your emotional tolerance for Risk/Reward and see where you are now.
杜拜也水浸 世紀暴雨恒常化 – 香港經濟日報 – 趨勢 – 趨勢分析 – 國際
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杜拜水浸受到國際傳媒鋪天蓋地報道,之所以如此矚目,相信因為情況罕見、反常,就好比新加坡落雪,是極少在當地出現的氣候現象。乾旱如杜拜也出現洪水級暴雨,引發廣發水浸,可見全球暖化的可怕之處,很多城市都未準
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47 minutes ago
Hello CW8888,
ReplyDeleteI love reading your Investing Made Simple series!
Lots of gems of PRACTICAL wisdom.
I am still trying to flush out some theoratical knowledge that are inhibiting me. Is true we have to be selective on what we read!
LOL!
Hopefully after you have flushed out. You huat even more.
ReplyDelete