Can Injuries Help Us Assess Risk?

July 29, 2010

I’m usually a good sleeper, but the other day I lost a battle with the sleep thief Insomnia. The reason for my blissful lack of sleep was that I found out that I need to have surgery to reattach my bicep tendon. (I’ll save that story for another blog and another time.) Anyway, one of my random thoughts was about the similarity between playing various sports and investing.

For starters they both require a fundamental knowledge to understand what are the right and wrong ways to succeed. Then, there is a lot of practice to get to a level where you feel comfortable playing/investing with the “better players”. On a side note, remember how practicing sometimes wasn’t fun? And did you win every time you played? Funny, a lot like investing.

Which brings me to injuries. Sometimes you believe you do everything fundamentally right and SNAP, you tear a tendon. Hurts doesn’t it? I can tell you it does. Well, occasionally the stock market goes the wrong way and you feel a different type of hurt. So what do you do when you’re hurting?

It’s about reassessing the risk you’re willing to take. My doctor gave me a choice, I actually didn’t have to have surgery but I would have to give up certain activities. I’m not willing to do that at this time.

Same applies to investing. When the market makes you hurt, reassess the risk you’re taking.  Is it time to minimize the chance of market risk? Or are you willing to still accept the risk for the potential reward?

Oh, one more thing, after surgery I get to go through physical therapy.  Regain the confidence to do all the activities I enjoy. After a market downturn, consider going through physical therapy for the injury to your portfolio.

 

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