How To Minimize Your Losses In The Stock Market

What Is Risk?

Warren Buffett, widely regarded as one of the world’s greatest investors, has famously asserted, “Risk comes from not knowing what you’re doing”. He’s correct, of course, but who admits that? “Risk management” in this context refers to the process of identifying, evaluating, and addressing the potential dangers posed by stock market investments. Due to inherent uncertainty and volatility, investing in stocks necessitates vigilant risk management. As a result of the unpredictability of stock prices, all investments carry the risk of loss.

The trouble with a lot of investors is that that are lured to an investment overwhelmingly by the potential gain. Of course, this is a natural reaction and on the face of it just fine. Who doesn’t want to make a quick buck? The challenge arises from the conflicting priorities of pursuing profit and the necessity to assess risk beforehand. Investors essentially are blinded by the potential riches and forget that starting with the risk in the investment is paramount to the potential return. As an investor, it’s always prudent to start with risk. Establish what you can lose and measure the return secondary. It’s important to recognize why this is usually not the case for most people.