The Role of Risk in Investment Success

Risk avoidance typically leads to avoidance of returns, as risk is fundamental to generating gains in investment. Investors earn profits by accepting and managing risks rather than avoiding them. While many understand this concept intellectually, human nature complicates the acceptance that enduring occasional losses is critical for achieving investment success. Embracing the possibility of losses is necessary for a robust investment strategy, and encountering setbacks should not be surprising. The focus should be on the balance of outcomes, specifically the ratio of losses to wins and the magnitude of both. This highlights that losses can coexist with successful investment performance.