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Why Risk Taking Is Necessary In Investing

Apr 9, 2008
There was a guy during the 70s who deemed taking a loan on a $10,000 apartment was expensive and risky due to the high interest then. Today, that same apartment is worth over $1million. Yes, he missed making the million that other risk takers have made by "staying safe". Is this guy, you?

In the early years of automobiles, travelling beyond the speed of 80mph was deemed to be extremely risky and that it might crush your intestines and organs. However, a few automobile makers refused to believe in it, took the risk and made billions with their advanced automobiles.

Throughout history, risk taking has been synonymous with progress. Without risk taking, there can never be progress and our world would look very different indeed. Every record breaker and history makers lived on the edge and took risks which seemed too risky for the common man. These are the people whom we eventually remember, adore and idolize.

This is the same in investing. Without risks, there can never be reward. Every potentially rewarding trade comes with a measurable and significant amount of risk. Avoiding risks means avoiding every reward that life have to offer. No matter how safe anyone makes a method of trading or investing to sound, there are risks involved and these risks are measurable and quantifiable.

The trader who took the risk of buying into a bear market eventually reaps the reward of the eventual rebound and made millions while the investor who tried to stay safe missed it all. In fact, every stock market miracle and every stock market multi millionaire were made through calculated risk taking. Avoiding risk only means avoiding the chance to completely change your life.

By taking risks, we do not mean recklessness. There is a fine line between risk taking and reckless suicide. Risk taking involves comparing the potential rewards with the measurable risk and then determining if the odds of winning are higher than the odds of losing. Reckless suicide simply means jumping in and wishing for the impossible that is doomed to fail. In short, risk taking involves a sound assessment of the relationship between risk/reward against the odds of winning while reckless suicide is like jumping off a cliff naked dreaming about the fame and fortune that you will get should you suddenly be able to fly.

Amazingly, it is actually the risk takers who eventually take lesser risk than the risk-fearing folks! Risk fearing folks buy stocks that have moved too much and frequently end up losing money while the risk taking folks who buy stocks at its bottom frequently ends up with millions in their pockets.

Stock options is currently the best risk limited financial instrument in the world today which anyone can use to bet on the same rewards while risking only very little money. Stock options trading essentially made risk taking more affordable and profitable. In short, there really is very little reason why investors should not learn to take more risks.

Many baseball players stood on the pitch and not take a swing at the ball simply because striking out is too "risky". These are the ones who never made it to the major league while those who decide that the odds of hitting the ball and a home run is higher than the odds of striking out, took the risk and swung the bat are those whom we remember. Learning the art of taking risks and measuring risks will change your life. Trying to live a risk free life is like living in a glass cage... that is not real living or real investing.
About the Author
Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management ( MastersoEquity.com ) and author of OptionTradingPedia.com . He is a fund manager specializing in options trading and his revolutionary Star Trading System has helped thousands.
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