Elon Musk and Investment Risk

  1. To distinguish between volatility and stability — too many people think something that is volatile is more risky. The opposite is true. The person who is self-employed, and has 2–3 incomes, has a more volatile income. However, that person’s income is less likely to go to zero, compared to the person relying on 1 `non-volatile` income. Likewise, assets that are more volatile, like markets, have always outperform cash and bonds long-term. People make this mistake all the time. They speak about China having a `stable government` as opposed to a `low volatility government`, or `stock markets being unstable now`, when they really mean `highly volatile`.
  2. Remember also that taking no risks is impossible.
  3. There is no such thing as a free lunch. That job paying a non volatile income, especially if the income is high, will have 1000 candidates per 1 job. You will get told what to do all day, unless you are lucky. If you have a non volatile investment portfolio, you will end up poorer, you will just never see big declines.
  4. Doing nothing, taking no action, is usually more risky than doing something long-term.
  5. A decline and a loss isn’t the same. $10,000 invested in the S&P in 1941 would be worth $52 million today but there has been so many 50% declines along the way.
  6. Taking immediate action is one fo the best ways to overcome procrastination. Top performers get in the habit of taking immediate action.
  7. You will never get 100% information. As soon as you have 80%, you have actionable information. Take the decision. In investing all you need to know is; a). What is the long-term performance of the funds; b). What is the cost; c). What’s the process. Maybe 1–2 other things, but you get the point. Half the questions people ask, or are worried about, are irrelevant.
  8. If you are going to have loss aversion about anything, make it about time. Think about it. If you are paid $100 an hour, and you complain for 1 hour about some $5 fee your credit card company has levied, you are losing $95 even if you get it reimbursed. If you spend 5 hours a month, or 60 hours a year, checking your stock portfolio, you are losing time.

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