Personal Finance & Financial Independence
3(ish) Articles, Curated Daily
In “Confessions of a Winning Poker Player,” Jack King said, “Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career.” It seems true to me, cause walking in here, I can hardly remember how I built my bankroll, but I can’t stop thinking about the way I lost it.
Ok, so I wouldn’t necessarily recommend trying to achieve financial independence by playing poker (although there are certainly some that have). But poker and investing do have at least one thing in common, to achieve your goals, you must master your psychology.
The basic concept being described in the quote above relates to the concept of loss aversion. Essentially, losing a dollar hurts us much more than gaining a dollar. The current investment market shows why we want to try and avoid such thinking, loss aversion would have us sell off everything after the crash, only to miss the recovery that’s happened over the last couple months (at least stock market wise). Today’s first article explores the concept of loss aversion more thoroughly and explains how to fight its effects in order to maximize investment gains.
Loss aversion keeps you from seeing the upside from monetary transactions because losing money sucks for humans. Even just a little bit feels like 2x the loss as compared to a dollar gained.
“Understanding why we are making significant financial commitments to such a long-term goal is one thing. Being happy with the lifestyle this dictates is another. So we need to ask why we are doing it and how we are going to sustain it, otherwise we’ll never make it.”