I’ve talked and written at length about the necessity of recognizing that we are imperfect and how our natural tendency to fight that reality harms us as investors. When we deny that a loss is really a loss (see The Paper Loss Fallacy) we allow the problem to potentially grow into something meaningful and dangerous. By becoming comfortable with the reality of imperfection we give ourselves the opportunity to keep losses small while letting winners grow unconstrained. Rules that allow for the generation of a lopsided relationship between the size of wins and losses are the key to generating long term growth.
Recently I conducted a review of a client account that has been here since January 2008. Every transaction was examined Continue reading