You have to be a risk-taker to survive as an investor
— taking intelligent, calculated risks where there's
a legitimate expectation of a positive return. For example, there's
no getting around that fact that every time you buy a stock, you
risk your hard-earned money to make more money. You take a similar
risk as long as you hold the stock, since its value is not guaranteed.
That's why, as an investor, it's good to have a healthy
respect for risk.
But there's a big difference between managing risk and being
controlled by it. If you're afraid to act, you may miss good
investment opportunities. On the other hand, by evaluating the
potential consequences of your investment decisions, you reduce
the chance of making careless mistakes.
Avoiding mistakes
Perhaps the biggest mistake you can make is investing without
a plan. If you pick securities haphazardly, without doing your
homework and without a strategy in mind, you may discover to your
dismay that you've put your assets at unnecessary risk. A
related problem is letting your emotions — such as falling
in love with a stock you've chosen — get in the way
of making smart decisions about your investment dollars.
Remember, too, that the market isn't always fair. You can
have a plan and execute it correctly, but still discover that
the outcome isn't what you expected. What you need are buy
and sell strategies that are flexible enough to operate in bullish,
bearish, and neutral markets. Preserving the capital you have
is as important as accumulating it in the first place.
