So, I was thinking about risks in investment, when I came across this article about stock market risk / declines, and how people's psychology is the problem more than the declines. I think this true of a lot of things, and stock market is simply a good example.
https://www.bloomberg.com/opinion/artic ... nd=premium
Once I managed to train myself to not freak out about stock market declines or crashes, but instead look at them as opportunities, I started making real money investing in the stock market.
In fact, I found two things that were hurting my stock investments. One was fear of volatility, and my own tendency to get bored with a stock and sell.
So, the freaking out about market volatility I solved with setting up my own rule. I learned to force myself to apply the 'don't worry, be happy' and start buying approach. If the market declines 10%, I start shopping for deals. Something probably got thrown out with the bath water and is down even more than 10%, or at least I start making my wish list if they go down more. If the market goes down 15-20% I start nibbling. If It goes down past 20% I double down. 30% double down again. Just keep on doubling down, all the way down. Basically it is like counting cards in black jack. I might not be able to make up all my losses for the stocks I am holding, but if I keep buying I can find some bargains and sure take the sting out of the rest of my portfolio, eventually.
Under no circumstances will I sell just because the market is going down, because I have another rule that says "if I am not happy holding it for 5-10 years, don't buy it, even if I bought it expecting a short-term gain". I always like a long and short-term investment thesis to go with any particular investment. How can I make money quickly; and, if I get that wrong, how to make money on it in the long-term?
My other problem, that lost me a lot of money early on, until I realized what the problem was, was selling otherwise perfectly good stocks that were soooo dull. For instance, in a moment weakness, I once bought Disney. It was like watching paint dry, and I sold it at a small loss after a few months. It was a perfectly fine stock, for grandma to buy for her grandkids.
I realized I did that a lot to my portfolio. What everyone was saying were "safe" investments, were not safe for me. I need something with some action. I want my investments to entertain me, not just sit there and earn 2%. I seen a hedgefund manager once say, "I don't invest in anything unless I see a 25% upside". I realized, that is what I need to do. Too much of the bla, bla, that is written about stock investments is written by brokers and hedge fund managers just trying to not get fired, protect their end of the year bonus, or keep grandma coming back with her retirement fund. I don't have that problem, and I don't want to have the problem. Ever since, I been able to consistently nail 9 out of 10 of my stock picks, and make a steady 20-30% a year on my portfolio. Probably more importantly, I am enthusiastic about hanging on to most of my stocks sufficiently long to let them make money.
Looking back, I realized I had done that repeatedly to more than a few businesses I have owned. I would have a perfectly good business. Making money. Very little for me to do. So, I sold them or closed them. They put me to sleep. For instance, I once had a copier rental business. I bought used industrial copiers from Xerox being traded in from companies every year, and then bought an extended service warranty, and placed them in small businesses like call centers, mailbox etc type places, in the midwest United States that could not afford to own one outright. The copiers would have say 100,000 copies on the dial, but were rated for over a million copies. I rented it out on a per copy basis, splitting the fee with the owners of the establishment. All I had to do was go collect the money once a week. Really, about as risk free as it gets in business. I totally hated it. Sold it six months later, and moved on to something more fun.
So, in real estate, I have found the same thing. Strangely, any time I get itching to sell a particular property, the best thing I can do, is go visit the property. I look around, see the potential, enjoy a walk with my dogs, admire how the trees have grown, spook a rabbit or two, and 30 mins later I realize why I bought it in the first place, and sort of fall in love with it again. Same thing as the stocks. It needs to entertain me a bit, if I am going to hang on to it. If I can not fall in love with it again, then I will sell it.
Point is, it is all about risk management. In particular, what is "your risk tolerance", and not what everyone else considers "risk". Trading stocks teaches you that at an accelerated pace, but if you apply say good risk management to a lot of things, life gets easier; or, at least, a little less stressful. Most the risk in life, is in your head. Not out in the World.