You have to take Risks. Not being sufficiently informed is like a drunk-tourist playing poker at the Bellagio Las Vegas at 2 am on a Friday night (well, early Sat. AM). (You’ll get slaughtered like sheep. It’ll be a bloodbath in a Shark Tank.) You will lose $$$ at some points. Expect most things to not work out. Once in a blue moon, you’ll do ONE thing and it’ll be the right thing done the right way with the right person/people at the right time/place. But, if you persist (i.e. don’t quit), you’ll get Lucky with those moon-shots. You have to be smart enough to identify those situations in which you’re getting lucky and capitalize on those (relatively) rare opportunities. Sit pat if you got the nut flush.
Answer by John Hwang:
I only have three rules.Each rule is useless without the other two rules.The rules apply to trading, financing, market making, investing, performance marketing, sales.. pretty much anything you have to take a risk.The three rules are:
- Do your homework.
- Cut your losses.
- Let winners ride.When all three rules are followed, you significantly reduce the odds of losing money in anything.Step 1: Do your homework.Do you know why you are making money? Or, why you are losing money?Doing your homework means you need to know what the rules of the game are, and how to break them when the system changes.Investors that don’t do their independent homework is like a drunk tourist playing poker at the Bellagio in Las Vegas at 2 am on a Friday night. You will get smoked.And just like homework, you can’t cheat and ask others for answers.Asking “How do I make X in Y days” on Quora is an example of cheating.Step 2. Cut your losses.Whatever you do in life, you can’t guarantee things not going sour.Investing isn’t quite a game of chance, but there’s randomness involved. You will lose money at some point.Think investing in index funds isn’t taking a chance? You are wrong. Yes, historically they have returned 9%. But that’s also because America as a whole did really well in the 20th century.How to ease the pain of uncertainty is simple.You need to a) have a system b) believe in it c) when the system tells you to stop out, just stop out.You need to go in with this mindset prior to taking on a position.Step 3. Let winners ride.Expect most things to not work out in life.Hey, even on Quora, most posts get less than 300 views.But once in a while, you’ll do ONE thing and it will be well received.Similarly, in investing, you will get lucky once in a while.And you have to be smart enough to know when you are getting lucky.Sit pat if you got the nut flush.