The Herald Bulletin

Morning Update

Columns

February 9, 2013

‘Go big or go home’ shouldn’t apply to investing

As a society we always want to be the best, whether it’s hitting the longest drive, driving the nicest car, or owning the biggest TV. This notion of ‘go big or go home’ has been draped over the American culture for decades. No one wants to be left behind and if you’re going to do something you might as well do it BIG!

This type of thinking can get people in trouble when it comes to their investments. Investors often talk about the large gains in a stock where a few days created nice returns on your statement while ignoring the massive amounts of risk taken to get those returns. While our friends or co-workers might share these types of investment war stories, keep in mind that few people ever seem to mention the losses.

While being lucky at a casino can be a good thing, it can actually have a detrimental impact on our finances. For example, if someone went out and played golf for the very first time and hit a hole-in-one they would be ecstatic!  However, they would likely not have a clue as to what they did to hit that hole-in-one or be able to turn it into a repeatable process. They got lucky and that luck often turns into over confidence. The same can happen with trading. It just takes a few lucky trades to boost an ego and dismiss the valuable lessons learned about proper risk management. This ego boost can take an investor down a path of seeking out more risk and looking to “go big or go home” with their next investment or trade.

Last week’s article discussed how we should view investing as a journey and not just a snapshot. This idea fits well into the notion that to invest based on the over-quoted “go big or go home” is more likely to blow up an investment account rather than hit home runs. Millions, if not billions, of dollars have been made and lost on lucky “go big or go home” trades. We can get blinded by the glory of our vision of “conquering the stock market.” In reality, nothing could be further from the truth. The true success stories of investing come from those that have dependable processes and are more concerned with minimizing their risk than having a good story revolving around a gamble that ended up paying off.

Investing and planning for retirement is a journey, and one that we should not take lightly. While it may be fun to have stories to tell around the water cooler, it’s not wise to wager on that “go big or go home” trade when its possible negative implications can be detrimental to our future. Risk management is one of the most important concepts we must practice and, unfortunately, can be one of the quickest philosophies we forget when our egos get in the way.

Joseph “Big Joe” Clark, can be reached at bigjoe@yourlifeafterwork.com or 640-1524.

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