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What I'm reading #25: Losing money is normal for experienced investors


By Sam Instone - June 23, 2022

I read a fantastic article recently in The Financial Times

Super relevant to us all given current market performance...

Author, Rhymer Rigby, explained why the richest people tend to cope better with substantial losses...

Compared to those who made their millions quickly. 

Rigby told the story of his friend who'd lost £70,000 from crypto, as well as Mark Zuckerberg losing $40bn this year as a result of declining shares. 

How do people cope with such losses?

A clinical psychologist who specialises in wealth, suggests that those who've been around money for a long time, often deal with loss better. 

The primary reason is their diversified portfolios. 

It's less likely their wealth will be wiped out in one go and will be happy to sit out the fall and pick up assets on the cheap.

"Paper losses that will eventually be offset by paper gains."

However, for those that made their millions quickly, the situation may be different. 

It may cause them to become depressed, angry or even suicidal. 

Leading them to ask, "how much of my ego and self-worth is attached to my net worth?"

A common theme for those who made their millions quickly is that they've ignored conventional wisdom. 

And, you should probably think twice if you attribute your success to your own talent, when in fact it may be mostly due to luck. 

Just because you're a successful businessperson, doesn't mean you're great at investing. 

Investing or gambling?

Psychotherapist, Tony Marini, has previously highlighted the number of people he sees that start out trading before it develops into an addiction, particularly in areas such as crypto and day trading. 

He himself lost £2m before he went into recovery, and describes the process of fixating upon graphs a lot like gambling. 

This can, of course, spread into wider social circles.

Those who feel they've found a 'shortcut' to wealth, will often recommend it to friends and family.

When failure comes, this can also lead to huge feelings of guilt for the others affected. 

What can be done?

If you feel addicted to trading, watching markets and finding short-cut wins you should seek help and support. 

It's a fine line and only you know where you sit... 

And risk is part of the course for the long-term investor.

Remaining on the sidelines means missing out on the biggest gains. 

In the words of Nick Murray:

“Let me state the general principle, in no uncertain terms: the only way to be assured of capturing the full permanent return of equities is to ride out every day of their temporary declines. It is simply not possible for anyone consistently to gain a timing advantage over the market by going into and out of it.” 

There is no asset class that outperforms stocks over the long run.  

None.  

They outperform bonds. They outperform commodities. They outperform cash.

Bitcoin. Gold 

There's quite simply nothing you can invest in that has more evidence to support its long-term performance.

Stay confident, stay the course and avoid emotional decisions. 

 

Further reading

How should affluent investors understand and deal with risk?

What I'm reading #22: The power of connectedness

One simple way to get your children interested in investing

Goals vs. capital: Are yours aligned?

The current state of the markets: 5 questions answered [video]

 

Unparalleled opportunity for investors, get started today - David