The 3 biggest mistakes people make on RISK

dozu888 said:
a couple of points -

the size of the risk is a perspective thing... like $100k for me or you maybe not much, but for the guy scraping together $25k to start daytrading, $100k sounds like a big number...

to expand this concept a little bit.... in some situation you may have to risk it all lol.... say you want to try sky diving at some point of your life.... should you do it when you are 25, or when you are 70..... to me the answer is a no brainer lol.
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How big is the risk to the person is related to how much the person is risking with respect to his total networth.

As for sky diving, I will never do it personally. It's a matter of perspective. I see mostly risks but negligible monetary returns in sky diving. It's unnecessary risk to me. It's a have-risk-no-gain dumb activity to me. LOL.
 
On the flip side you can’t know until you tried. The same logic would have kept people from gambling their nut into something that provides 1000 fold. Ya just don’t know which risk/idea/concept will produce the 1000 fold f&&k ya money. Which is counter to what really counts but that’s another thread.
 
helpme_please said:
How big is the risk to the person is related to how much the person is risking with respect to his total networth.

As for sky diving, I will never do it personally. It's a matter of perspective. I see mostly risks but negligible monetary returns in sky diving. It's unnecessary risk to me. It's a have-risk-no-gain dumb activity to me. LOL.
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lol it's an extension of the argument, where 'life experience reward' replaces 'financial reward'... actually generally speaking if you step out of your apartment to do anything fun usually the risk goes up lol.... and in many cases the fun factor does increase proportionally with risk, like I am gonna ride my dirt bike this afternoon and I can't wait till I am 70 to do it lol.
 
dozu888 said:
lol it's an extension of the argument, where 'life experience reward' replaces 'financial reward'... actually generally speaking if you step out of your apartment to do anything fun usually the risk goes up lol.... and in many cases the fun factor does increase proportionally with risk, like I am gonna ride my dirt bike this afternoon and I can't wait till I am 70 to do it lol.
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Be careful and take care. Have fun taking "unnecessary risks". LOL. No right or wrong. Just enjoy yourself having fun :)
 
helpme_please said:
When you take big risks at 20 years old and lose everything, you lose thousands. It isn't so bad because you can still find a stable job and recover from the loss. When you take big risks at 70 years old and lose everything, you lose millions. To make matters worse, at that age, you're probably unemployable and most likely unable to recover from the loss.

When you take big risks at 70 and succeed, you don't have many years left to live and enjoy the success. When you take big risks at 20 and succeed, you have a lifetime ahead to enjoy the success.

Taking big risks when young and falling hard early speeds up the learning process. This speeds up the wealth creation process.[QUOTE}
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Exactly.Best to lose%% when young, hopefully one has a chance to recover. And hopefully by the time one matures, one knows a lot more to life than a job.
And don't keep on doing stupid stuff@ any age; a lotto is a stupid tax on people that cant do math LOL...……………………………………………………………………………….
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dozu888 said:
- the first one is very common, and is laid out in Justin Mamas book The Nature of Risk. People take too little information risk and too much price risk. In other words the 'need to know for sure'... I think most know what I am talking about... it's Mamas' idea anyway so read his book :).... the next 2 are my own observations/theories:

- underestimating the opportunity cost... the so called YOLO - and therefore taking on low probability ventures when they are young.

Actually due to compounding, the correct way is to take high probability activities when you are young, and low probability when you are older.

so many people would go like I have saved up $25k, let me just try my hand at day trading, and if I blow the $25k I am only 25 years old it's no big deal.... WRONG!, it's a very big deal!... $25k at say age 20, if you just hold QQQ, becomes $200k in 18 years! and $1.6m in 45 years! in other words you have just blown your 'could be retirement portfolio' !

The logical thing to do is you should try day trading when you are 70 years old... you will get the same experience, but the cost is far lower.

in other words, when you are young you need to be conservative! not in the sense of putting money in bank CDs, but in the sense of following the proven path to wealth - climb the corp ladder to a director / VP position asap! or gather enough skill and become independent consultant ASAP! and buy a damn house, the most proven way to gather equity...every $10k less you make per year when you are 25-30, translates to 100's of $k when you are older.... once you are finally set, then you can fool around... the conventional wisdom has it ass backwards - 'I am young so I can take on more risk'.... NO!

- the need to be 'in control' - in a different thread I mentioned QQQ (again lol) and people asked what if it crashes like 1929... legit ask, nobody knows for sure... but - worrying about market crash, is, in a way, like worrying about a plane crash.

the death rate per 1000 traveler mile, is far lower for flying than driving, yet many worrying about plane crash and prefer driving because they have their hands on the steering.

applying to trading, even though the NDX has performed 12.5% since the day it was born in 1986 and has been virtually unbeatable by any pro managers, yet the amateur investors are worrying about what if the QQQ crashes, ignoring the fact that 95% of retail brokerage accounts are net losers, a failure rate far higher than the drive to the airport.

Good luck.
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Have to take the risks when younger, you risk getting right degree at right school, risk finding the right woman to stand at your side, get far many more opportunities when younger than older. I am older at 62yo, opportunities for me is what I start/build and not offered like when you are 25, when older your hands shake from meds so starting to day trade very few have physical ability to do so, certainly DO NOT have capacity of memory. Until you get to the age -you have no clue of what you are writing about.

It is far better to crash and burn several times when younger than when you in your retirement years.

But I am happy I did it right, learned long term first, then 8 years later learning/losing in intraday trading. I think being younger allowed me to overcome all the ugly mental aspects you learn about yourself when you can't find how to overcome lack of knowledge trading pieces of a day.

When younger you are fast and hungry, when you older you can't get to the bathroom fast enough and you think about lunch. Life is not about "WHAT IF'S" considering most retire with not much in retirement accounts, life is about dying and the friends you have made through the years.
 
Here's the thing, you could do 50/50, 75/25 or 90/10 in terms of allocating between passive investing ("guaranteed" compounding) and trading. If you turn out yet another Padutrader, at least you got a different part of portfolio that compounded for all these years.*

* Yeah, assuming the future will be the same as the past, particularly w.r.t. to a particular nation's stock market performance is a big if. That said, assuming upcoming high tech (particularly robotics/removal of humans from work) is going to add massive wealth coming decades isn't unreasonable.

Not intending to write a longer post, obviously there are much better pieces written on the topic than anything in this thread. However, I guess the purpose of dozu888 is simply to make new enthusiastic young members stop and think about what they're doing.
 
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Risk taking is a matter of knowledge. I see young guys trading with an analytical approach, API development, and less of a naive approach than their previous generation about the markets. They had access to the internet since they were born (almost) and took advantage of all the free knowledge out there while many are self-taught (including coding).

The OP assumes that the risk taker is a young trader who saved $25K, and goes "all in". That is reckless, and I agree it should be avoided. But, many do not think this way. In fact, many saw how their parents lost their life savings in 2008 and are very wary in their approach. In my opinion, the new generation is self-directed in everything. They are not all "To the Moon" coin traders. If there is an age that people should take risks, is precisely when they are young. To argue against that because of QQQs is not relevant.

Risk-taking evolves our mind, and part of falling on your face and recovering is what will lead to the new leaders and innovators of tomorrow. Look at all the innovation around us, it is all as a result of someone taking risks. If they waited to take the chance when they were 70, I would have a "faster horse" not a car.
 
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