E Always Think About Risk Before Return

*Excerpt from the new best selling book: A Value Investor’s Journey Through The Unknown

“Focus on the downside, and the upside will take care of itself.”

Mark Sellers

Every great investor has one thing in common:

They think about risk before ever contemplating return.

Contrary to popular opinion, the greatest investors are extremely risk-averse. A great investor will always focus on risk first --- reward second. The majority of investment strategies and systems do not focus enough on risk and the probability of permanent capital loss. I only know of one such strategy, and that’s value investing.

There are only a few options you can use to help you decrease your risk: hedge or sell when appropriate, know your investment intimately, hold cash, invest in the “risk-free” rate, diversify to a certain extent, and of course invest with a margin of safety.


1st Rule of Investing: Don't lose money.

2nd Rule of Investing: Don't forget the 1st Rule.

As many know, this statement was made famous by Warren Buffett, and I agree with him wholeheartedly. This is why I believe that investing in a risk averse manner is the best way to protect your capital and increase your wealth over the long-term.

Any permanent losses to your investments can wreak havoc on the beauty of compounding. Even compounding at very low rates can bring about massive success, so an investor’s focus should be on understanding the potential for permanent loss in any investment.

Of course this doesn’t mean you “never” incur risk…

First, we need to define risk. The definition of risk is an interesting topic altogether, but I define risk as the probability of permanent capital loss over several years. Fluctuations in stock prices do not constitute risk. The underlying business fundamentals, and its future prospects will determine what constitutes risk to an investor.

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Abdul Habib Taj 5 years ago Member's comment


Lukas Neely 5 years ago Author's comment

Thanks for all the kind words and support! Enjoy!

Dick Kaplan 5 years ago Member's comment

Planning to pick up a copy of this. Thanks.

Dan Jackson 5 years ago Member's comment

Looks like an interesting read, thanks for sharing.