As we already said, investing in no way means to bet or gamble.
Investing is based on studies and statistics, in order to find reasonable expectations of success and trying to exploiting them with a specific strategy. This means that studying will never hurt for the purpose of investing.
As Benjamin Franklin said
“An investment in knowledge pays the best interest.”
The more you study, the more you deepen an argument and becomes master of it, the better. This is an absolute rule. However, there is still a risk for those who decide to study and deepen, a risk you must have clear from the outset, because it affects virtually everyone. Even the greatest investors have been affected at least once.
Investing is not predicting
We are talking about the risk of “believing you cannot make mistakes.”
To put it in other words, believing to be always right and not seeing anymore the circumstances that are saying the contrary. No matter how extensive your studies were, the market will punish you severely if you’re not willing to admit you were wrong, even if all your arguments predicted you were right.
The market is based on people and their decisions, not on mathematical laws, and, as we know, people very often tend to take irrational decisions. Fear and greed are the two emotions that drive any market.
These two human conditions are indeed analyzable, but they will never, and I repeat never, be translated in perfect mathematical laws.
Even a strategy that scores 90% of the time will make you go broke if you’re not willing to accept that 10% of times in which it loses.
This happens often with those traders or investors who don’t want to shut down their loosing operations, or don’t want to abandon bad investments and admit the mistake, because they are convinced that sooner or later they will come back in their favor.
Investing doesn’t mean challenging the market
In the financial market circle, everybody knows that market takes no prisoners. Even the most solid strategies will make your account fail if, on the other side, you will insist in challenging the market.
Sir John Templeton said
“The four most expensive words in investing are: this time is different.”
Do not ever challenge the market. The market is always right.
Study, set a strategy and follow it, both when it wins and when it loses if the initial conditions are still there.
If they are changed, reason with a cool head if it’s still appropriate to continue on that road, even if this would mean to admit the error and a cash a loss. There is a saying that is often used in business, investment and trading.
“If you’re not willing to accept a small loss, sooner or later you will suffer the worst loss of your life”.
Be careful, this is a fact.