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Sunday, April 6, 2008

Fear from Risk

In general, the more risk you take the more fear you will have.

I recall the times when I was playing BlackJack in Las Vegas and doubling the bet every time I lose. The fallacy is that I cannot lose 6+ hands in a row. The bet would be something like this: 10,20,40,80,160,320,640... If I was betting $10, and I had 16 while the dealer shows a face card, then I would hit, because that is the strategy. For the same situation with a $640 betm then I would be afraid to hit because there are only 5 cards that could possibly help me and 8 cards that will hurt me.

The same principle applies to investing. I bought AAPL for my daughter's account on Feb 22 for 117.50. She now has 30.28% gain in the postion and her dad's APPL shares were liquidated at 130.

People tend to panic when they have a lot at risk.