Risk-reward in life choices

Oct 14 2019

My years of trading the financial markets have taught me one principal that I apply consciously in life.

Just focus on ‘risk’ in ‘risk-reward’

If you could profit $2 from a $1 investment, that’s a 2:1 risk-reward.

Take that risk every time and you’ll be a millionaire…except if \$1 is 50% of your net worth. That means you could only play this game twice.

If you’re looking for a philosophy to trade the markets, try ‘trend following’. It’s my preferred way to approaching the financial markets.

How does this apply in life

Here’s an example of how you can use this to choose a hotel.

What’s the worst thing that could happen in this hotel?

No hot water? If that’s fine with you, book it.

You’re only setting up for disappointment if you focus on the positives of the room.

Like how you read ‘amazing beach view’ in the review but greeted by construction work.

In other words, become pessimistic?

I’m incredibly optimistic.

Impromptu trips are fun. Unexplored jungles are exciting.

But I’ll first tell someone on my GPS and route, just in case I’m not back in 3 days.

I guess having this kind of worst-case mentality prevents me from skydiving.