We Study Billionaires: Making Smarter Decisions & Why Great Investors Are Great Quitters

Risk. It’s the ultimate challenge for investors. A great investment opportunity can (and should) carry some risk to it. Understanding that risk and how to reduce it is a crucial tool for investment success.

Most risk managers simply look to plug in numbers to determine a mathematical level of risk. That could prove dangerous. Risk changes over time. Plus, risk can include outside factors that may not fit neatly into a spreadsheet.

One tool that can be crucial for managing risk is to avoid overinvesting. Investors should look to take quick profits (or losses) on positions that aren’t playing out as expected.

Why? Because there are always other investment opportunities elsewhere. The market always offers new ideas for investors, no matter their risk level.

 Next, investors should avoid cherished ideas and not get married to a position. Getting too emotionally attached to an investment means lost objectivity.

And a company that has a great story behind it may not necessarily mean a great investment opportunity.

Investors who think more efficiently about an investment’s prospective returns and who are willing to walk away can make better decisions. Over time, better decisions compound.

Knowing when to walk away from a poor investment, and being willing to do so can make a huge difference in investment returns.

To watch the full interview, click here.