The Big Loss

What’s more important, avoiding a loss or making a gain? I asked this question at a recent training. The answer was unequivocal “making a gain”. Coming to look at it, if a market player does not master the art of avoiding a loss, he can make money but not a consistent gain. Over years my teachers, the great books I have read, make me feel that the words I use today are mine. Another very interesting learning I frequently quote is the fact that there are five things in markets. A small gain, a small loss, a big gain, a big loss and no change. The only thing which makes money is when you know how to avoid a big loss. If you mastered the art of not losing big, you are going to make consistent wealth. Unfortunately markets have many hard lessons, and market players are full of impatient learners. We just don’t learn.
Now let me ask you another question? How does one minimize the chances of a big loss, when he buys at a new historical high or a multi year low? This is the same idea we have been writing for nearly 24 months now. Till the time you won’t have the confidence to buy a worst loser, you are never going to avoid the big loss and till the time you are not going to avoid big loss, you will remain away from buying multi year winners.
Another important lesson is the lesson of surprise. An investor, trader or researcher should never forget that markets always have an ability to surprise. So if you are always ready for one, you are more adaptable. And if you are more adaptable, you can do better risk management.