A Constraint You Can Use to Improve Your Investment Decisions

Investing one’s savings is about keeping your decisions consistent and not letting your emotions stray you off course. I read good comments by two bright individuals on this subject last week.

After the financial crisis in 2008-09, investor Joel Greenblatt made the point that the error many people made was owning too much stock so that when the value of their holdings declined 50%, the shock to them emotionally led to a panic decision to sell at the wrong time.

A simple test: the amount of stocks you own should be an amount that if it declined 50% in value in the interim, you would not be too upset.

Professional gambler and investor Haralabos Voulgaris had similar advice for a person asking how to approach investing in Bitcoin: “Don’t buy more than you can afford to lose, set it aside, don’t sweat the day to day nonsense and hold.” The same advice can be used for stocks.

Sources: The Brooklyn InvestorHaralabos Voulgaris