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We tend to describe everyone who invests money as an “investor”, like they are all football players playing the same game with the same rules. This is almost entirely wrong.
Understanding that the investment game you are playing isn’t the same as the game other around you are playing is crucial. You should largely ignore information or advice from those playing a different game. Take time to really identify the game you are playing, the time horizon, the risks, the rules.
Understanding this will help avoid reacting to things that are unrelated to the investment game you are playing. Remember, the media commentator spewing out advice don’t know you. Rational people can view the world in different ways. The key differentiator is how you define and perceives risk.
If you think that risk is the possibility your portfolio will decline in value today or next week or even next year you are on a path for disappointment. Your portfolio inevitably will decline at some point, it’s guaranteed.
Instead, think about risk in an entirely new way. My colleague Carl Richards defines risk as “What’s left over when you think you’ve though of everything.” In other words, the car you didn’t see; The truck you didn’t see.
Morgan Housel – Author of the excellent new book The Psychology of Money offers yet another definition of risk: “Things that happen outside of your control that have a bigger influence on outcomes than anything you did intentionally.” Risk and luck, therefore, are two sides of the same coin but we think of them differently.
The particular Investment Game You are playing and the process you are following frame your risk. Make a commitment to the journey without regard for the short-term outcome.