Avoid Financial Risk: Advice From Successful Investors
Many thousands of successful people have been interviewed over the years in an attempt to discover their so-called “secrets of successful investments” in order to avoid financial risk. Here are some of their recommendations:
Investment Strategies of Successful People
First, if you are not a bit worried about your speculations or your financial risk, then you are not investing enough. You should have enough money invested so that it is a real concern to you. You are far more likely to make the right decision when you are emotionally involved because of the size of your investment. You are also more likely to watch that investment more carefully in order to avoid financial risk.
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Second, always take your profit too soon. “Conquer greed,” just as Bernard Baruch says. There is a saying in the stock market that “bulls make money and bears make money, but pigs never do.” Eliminate as much risk as possible and keep an eye on your personal finances.
Third, distrust anyone who claims to predict the future, since all financial outcomes are loaded with uncertainty. This means that every investment is a gamble of some kind and will contain some financial risk. No one can tell you with exact accuracy what is going to happen in the future with regard to any stock or investment. Everyone is guessing the very best way they know how.
Fourth, when the ship starts to sink, don’t pray, jump. In other words, accept the small losses cheerfully as a fact of investing life. At the very best, fully 50% of investments will go wrong. They will actually decline in value. They will fail to realize your hopes and expectations for them. But you can still succeed in investing if you minimize your losses on the downside so that you can maximize your profits on the up side.
Fifth, luck is the most powerful single factor in investment success. Because there are no predictable patterns in investing in the stock market, for you to be successful, you need a lot of luck. A good question for you to ask is, “How much of my personal finances am I willing to entrust to luck?”
Sixth, never fall in love with an investment. Successful people never become emotionally involved with anything that you purchase with the intention of making a profit. This rule also includes real estate, especially your home. Many people fall in love with their investments and are reluctant to admit they have made a mistake. As a result, they ride them all the way down into the cellar, and often end up setting themselves back by several years.
Seventh, never confuse a hunch with a hope. Many people hope that a particular stock or investment is a good one. They then say that they have a very good hunch that it’s going to go up. Consciously separate your hunches from your hopes and don’t confuse the two when it comes to your personal finances.
Eighth, optimism means expecting the best, but confidence comes from knowing how you will handle the worst. To put it another way, confidence springs from the constructive use of pessimism.
The method that successful people recommend is for you always to ask, “What is the worst possible thing that can happen in this situation?” Always be willing to face the worst possible outcome. John Paul Getty, at one time the richest man in the world, said that his secret for success in investing was to objectively asses the worst possible outcome of any business deal, and then to make very sure that it didn’t happen.
Ninth, disregard the majority opinion. Think through every decision for yourself. Don’t allow your investment decisions to be influenced by anyone else. Take the time to think them through personally, and then take full responsibility for each financial risk and choice that you make.
Tenth, if it doesn’t pay the first time, forget it. If, based on the information you have, you decide to invest in a stock and it doesn’t work out, sell the stock and go on to something else. Successful people keep their completely out of the equation. A very wealthy man once told me that, “Investment opportunities are like buses; there will always be another one along.”
Financial Risk and Your Personal Finances
The above advice is practiced by many of the most successful people who have ever invested in stocks. Remember, the stock market is highly speculative and a financial risk. It is dominated and controlled by people who are making their livings by buying and selling stock for others. And these people make mistakes every single day.
There are no full proof ways for making money in the stock market. If you are going to invest in stocks, be careful. Do your homework and watch your investments all of the time.
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