At the same time, you have to sleep at night.

This is a critical component of any investing strategy and one I constantly wrestle with as well.

What I have learned about myself is there are two items to the equation that cause me anxiety, my confidence in my analysis of whatever it is I'm deciding to invest in and my feelings about the amount of money at risk. I have found the first is easier to over come than the second for me. I have confidence in my plan but when it comes time to put the cash at risk, the amounts make me question myself.


As an example let's say a person is earning $100k per year and has managed to accumulate $3M of investable assets. That person now needs to be comfortable making potential moves of $300k to $500k, or more, when making decisions to have a meaningful impact on their portfolio. That's a difficult psychological position to overcome for many when they are faced with decisions on directing sums of money that are multiples of their typical historical annual income. A person needs to be very self aware and if they can't get comfortable with it then they are likely better off going the buy and hold route in a broad index.

'The Dhando Investor' by Mohnish Pabrai was recommend by someone (Jim I believe) on the old boards and I found it to be a great read for helping to develop a mental model for overcoming the anxiety around dollars at risk. 'Heads I win. Tails I don't lose much.'

Jeff

Mechanical Investing FAQ

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