"When traders and investors are exposed
to excessive risk, the magnitudes of the gains and losses generate
large emotional swings, which then interfere with sound planning and
That's the opinion of Dr Brett, and it's a reminder that when risk is high, either a good or bad result can lead to difficult trading ahead. Why?
"With confidence, you can destroy your opponent.
With overconfidence, you can destroy yourself.
Overconfidence, a topic relatively ignored in the psychology of
trading, is often responsible for poor decisioning, and the subsequent
demise of many a trader."
Jeffrey McLarty offers these pieces of sage advice;
"Buying Calls on stuff you hope will go up, is not a strategy.
Sooner or later, the capital you trade with, will go to zero. Promise."
"Holding stocks forever is not a strategy to earn absolute returns.
Nor a way, to “beat the market”. Nor a way to run an entire portfolio.
A lifestyle maybe…and its absolutely certain, that you will not post returns,
above the market you’re investing in. Unless YOU are Warren Buffett."
Jeff is a bit harsh, but I agree with his sentiments.
One more from Dr. Brett:
"You have to lose to win. And you have to embrace the losses to find the victories."430