Risks and Diversification
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To be a successful entrepreneur you have to take risks don’t you? Are you risk taker? Am I?
I think I am a risk taker and this is a sad story (to me) which demonstrates that. Wanting to be a successful entrepreneur I have always been fascinated by the stock market.
As soon as I saved up enough money I started investing. Like many of us I read pieces in the financial pages and took my advice from there. I then progressed to developing my own system… a system that has worked out rather well.
But I broke the system. I bought a company that the system would never let me do. I thought I was taking a calculated risk. It was a risk but I was young and had no commitments (at the time).
Anyway after buying the price kept coming down. To me that meant that it was even more of a bargain. Right?
I then found out a bit of news that brought the share price down. That increased my knowledge of the company and actually increased my confidence thinking I knew what I was doing.
As the price came down I kept buying more.
The price then stayed at a level so I thought it is now or never and bought a lot more. It stayed were it was for a couple of months.
Then the share price started to move. It started to move up very quickly.
“I was right!” about the company I thought and the share price was reflecting that. So I bought more!
Up it went and I had broken even… this will be one to tell the grandchildren about I thought.
Then it stopped and the stock plummeted. This time I knew it was bad, I knew I had made a mistake.
The price was falling quickly and I couldn’t get out, only managed to get a small chunk out.
It then reached its previous bottom and again has stayed there for a while.
It was different this time. I have commitments now so I wasn’t sure of what to do. It wasn’t until this point that I was ever worried about it… but now I was… very worried.
I started to panic as it started to move lower again. This is the first time I started to worry about investing so I knew it was a bad sign. I liquidated my position this morning.
The loss was big… nearly 1 year’s net salary and when you think about you have worked a year for nothing then that is frightening.
……………………………
The question now is how do I react. To be honest I don’t feel good. There is a bit of relief there but have to say I am gutted.
Yes I think I am a risk taker but I obviously got this one wrong. That will happen to risk takers and a lot of successful entrepreneurs.
Warren Buffett said about diversification to put all your eggs in one basket and watch it very carefully. I wasn’t watching carefully enough.
Successful entrepreneurs often don’t diversify. Their entire wealth and future is often tied up in their business. This means that it could all disappear very quickly and you have to be prepared for that.
Yes to be a successful entrepreneur you need to take risks but you need to fully know what you are doing.
I think the key is to know your business and know yourself.