This is a short article at Zero Hedge that is very instructive indeed and worth a read.
Point 1 looks at human risk aversion due to asymmetric evaluations of gain/loss
- i.e. the pain of a loss is twice the joy from a gain
Point 2 is that risk tolerance is inextricably intertwined with personality
- My key takeaway from this is that if you are of the lower risk personality, that’s cool – you just have more work to do!
and Point 3 channels Seneca: “we are more often frightened than hurt, and we suffer more from imagination than from reality”
- i.e. “risk management” isn’t just about minimizing loss – it is also about not letting fear get in the way of optimizing investment outcomes.