On... Learning to Fall

In my early teens, I was very much into skateboarding. It was a passion that I pursued for about 10 years of my life, from the age of 15 to 25.

Besides learning to stand and stabilize myself on the board and how to move, one of the very few important lessons I learned was how to fall. Arguably how to 'fall properly ' was more important than anything else because it helped me escape severe injuries, which otherwise were usually quite harmless and it also gave me the confidence to attempt more challenging tricks and obstacles. 

What has learning to fall got to do with investing and trading? In my honest opinion, learning how to fall is almost similar with learning how to take a loss in investing. It seems counter-intuitive that taking a loss is one of the most important lessons to learn instead of learning how to pick stocks. Sure, picking the right stock is important, but if you invest long enough, you will certainly end up with bad picks. Even the best of the breed only gets it right 60% of the time and since 40% of the companies will turn out to be duds, you will certainly need to take a loss on them. 

Hanging on to losers can be catastrophic for your portfolio. Just like in skateboarding, if you don't allow yourself to fall and fall the right way, you could end up with severe injuries. As the saying goes - if you don't take a small loss it might eventually end up as a big loss. Also, once you're comfortable with taking losses (small ones), you eventually develop the confidence to invest without fear. It is no different from skateboarding, where you develop the courage to attempt more and more challenging obstacles because you know you won't be hurt badly when you fall. 

This year, I have been focusing on taking losses. It feels difficult in the beginning to take a loss, but small losses don't kill and what does not kill you makes you stronger.