Market Talk with Piranha is currently moving to its new home at The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Wednesday, May 24, 2006

The Fear of Losing Money

I thought is would be interesting to sit down and write about people’s fear of money. Many investors fail in our world due to their fear of losing money. I don’t want to confuse the concept of protecting one’s money through proper money management and the “actual” fear of going broke. These fearful investors base their entire system and style of investing on a negative thought process. Successful investors, whether it be in stocks, real estate, businesses, etc. always think about strategies to protect from the down-side but they focus on the reward versus the original risk. Unsuccessful investors think about losing the initial investment and more often than not, pass up on a potential golden opportunity.

How many times have you heard a person say: ‘if I only put my money into that stock or that piece of real estate”? These same people are also the ones that continue to pass up on potential opportunities today because they are scared to lose. Nothing comes easy and life rarely serves up a free pass without some form of risk attached. When speaking in terms of stocks, an investor must place money after their best ideas or they will never know if they have a winning system. Many people paper trade and claim they can pick winners but I view them as fearful of losing money. The fear of money and the fear of losing are two of the main reasons why so many people go broke on Wall Street. If you don’t fear money and can accept losing as part of the game, you will eventually become successful.

A perfect example of a type of person that fears to lose money is a scared poker player. Sit at any $1-$2 no-limit hold’em game at a casino and you will quickly realize who fears money and who plays without fear. Good players may continually lose because they fear the dollar and fail to play according to their strategy. I have seen several bad players win lots of money at the tables because they bully the scared players out of their hands. The players without fear may be garbage players but they dominate and get lucky because they have a huge advantage against a fearful player that probably has the odds on their side. For example: if you are dealt a KK and raise for the first time but one of these fearless players re-raises all-in to scare you out of the pot, would you fold. I have heard many stories of players folding high quality hands due to their fear of getting a bad beat. In this case, the bully can only represent one hand that can beat yours, so the odds are heavily in your favor so you must call and call quickly (don’t have fear when the odds say you should win). Two remedies exist for the fear of a bad loss: a bankroll that can withstand a few bad beats and a strategy that capitalizes on hands with high odds for potential winners. Over the long term, you will be a consistent winner but must understand that beats will happen and some of them will be large (if it is a bad beat). Assuming that you let go or cut poor hands short, these larger losses can be avoided consistently. In poker and in life: scared money is dead money!

The same holds true in investing and in life. The people that assume the risk and calculate the odds of success are typically the ones that come out ahead with larger bank accounts. They don’t focus on the losing aspect of a deal and never blurt out the words “what-if”. To repeat, they don’t ignore possible failures as they prepare for the worst and expect the best. I will not deny that I have been in situations where I was scared to lose but that helped me seek out the answers to consistent winning. Losing will always sting a little bit in my case as it is part of my nature (a long background in sports) but I now accept losing as part of the game. I am NY Mets fan and grew up in a city that loves the Yankees and I always wanted the Mets to win (every game). Now that I am older, I understand that winning a series is more important that looking to win every game or sweep every series. If a team aims to win each series, they will most likely end up in first place when the season closes. A team that is about to play a 10 game road trip should aim to win six games and lose no more than 5. No one should sit there and expect them to win all 10 games. I expect each player to have the mindset to win the game on each specific day they wake-up but they can’t expect to win every game of the season.

I do the same with each trade I put on – I expect to win each trade but ultimately understand that some will fail and it’s ok as long as I don’t let it become catastrophic. I have learned to accept losing trades, losing money and I have challenged the fear of money. I place risk under control by developing and using a positive expectancy system and money management techniques that eliminate my fear of losing money. I may lose many small battles but I depend on my system to win the ultimate war.

Here is a quote from the movie Rounders:
“In "Confessions of a Winning Poker Player," Jack King said, "Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career." It seems true to me, cause walking in here, I can hardly remember how I built my bankroll, but I can't stop thinking about the way I lost it.”

That quote can be tied to investing with great accuracy.

One more quote that fits with the article I have written about the fear of losing money:
“They're trying to goad me, trying to own me. But this isn't a gunfight. It's not about pride or ego. It's only about money. I can leave now, even with Grama and KGB... and halfway to paying Petrovsky back. That's the safe play. I told Worm you can't lose what you don't put in the middle. But you can't win much either.”

*picture provided from*



At 9:50 PM, Blogger rgjtrades said...

Trader Mike!
Thanks! This blog really helped me today!.

At 9:12 AM, Anonymous Anonymous said...

It's a beast!

At 10:41 AM, Anonymous Anonymous said...

I think losing stings a bit for everyone, sports background or not.

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At 9:49 AM, Blogger Anthony said...

Attitudes to money go in families - my father worshiped money and was well off but was frightened about losing it all (and so he lived in that prison) by his father who had it tough - on my mother's side my grandfather bet on the horse's and ended with not very much other than a pension. So that is what I inherited - subconsiously I did not want to make money because (a) I did not want to be in my father's fearful prison and have that limiting attitude (b) I was frightened of the pain involved in losing it! That was my money attitude blocking the flow of money coming towards me. Not uncommon. I treated it with E.F.T. an energy balancing therapy. nobody should be without money or feel deprived - the cake is bigger enough for all to have a slice.


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