An important statement in the field of investing is the Psychology of the Investor.
This was brought out well by Morgan Housel in "The Psychology of Money":
"There are also multiple sides to room for error. Can
you survive your assets declining by 30%? On a spreadsheet, maybe yes – in
terms of actually paying your bills and staying cash-flow positive. But what
about mentally? It is easy to underestimate what a 30% decline does to your
psyche. Your confidence may become shot at the very moment opportunity is at
its highest. You – or your spouse – may decide it’s time for a new plan, or new
career. I know several investors who quit after losses because they were exhausted.
Physically exhausted. Spreadsheets can model the historic frequency of big
declines. But they cannot model the feeling of coming home, looking at your
kids, and wondering if you’ve made a huge mistake that will impact their
lives."
References:
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