Did you catch any of the Olympics? With so many stunning performances, we’ve got competition on the brain. The human mind is a funny thing, though: sometimes we’re so keen on not losing, we don’t notice when we’re getting in the way of our own wins.
We don’t want to risk wasting our chance. It happens to people when it comes to investment decisions, too. The Financial Times recently put it this way:
“Think of your life like an archer releasing just one single arrow at a target. Naturally, you want to make your one shot at life a good one—to hit your bullseye—and this is why you mitigate your risks: to improve your precision (or the tightness of the grouping of your potential arrows) as well as your accuracy (or the closeness of that potential grouping to your bullseye).”
Let’s break that down. We very much want to hit that bullseye, so we will do what we can to get rid of the wild shots: through practice and experience, we realize they are the most painful and obvious problems, right?
The Times continues, however, that we often end up “improving precision (removing our bad potential arrows) at the expense of accuracy.” When we control for a more limited, consistent potential performance, we may be sacrificing our proximity to the target.
The price of so-called safety is often hidden and certainly too high. Mitigation tools can omit “the great shots that could have been” for the sake of reducing “the bad shots.”
To a degree, it’s understandable: the bad shots can be so noticeable, of course reasonable people want to avoid them! Those missed shots, on the other hand, will never be as obvious, so who’s to say they hurt that much?
But long-term investors do know the costs. A few opportunities here and there, over a long stretch, can add up.
And we want to help you work what you’ve got.
Clients, need to talk about the shots we’re taking? Write or call, anytime.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss.
Want content like this in your inbox each week? Leave your email here.
Play the audio version of this post below: