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The Equitymaster Research Digest

Want to Get Rich with Microcaps? Be Loss Averse, Not Risk Averse
Jun 14, 2017

  • The classic error of gamblers
  • Loss-averse millionaires
  • Rahul and Rahul: Don't miss this free live event

If you ever visit Singapore, do check out the casino at the majestic Marina Bay Sands Hotel.

It's massive, it's plush, it's state of the art. And best of all, it's free for Indian passport holders.

But once inside, do resist the urge for big ticket gambling. Some harmless gambling can be fun, but never, ever bet too much.

You know how it works, right? The system is rigged. The house always wins in the end.

An acquaintance thought he was an exception to the rule and ended up losing a bundle.

'Come on Rahul, what's life without a little gamble,' he philosophised. 'After all, isn't this what you do for a living? Don't your recommendations sometimes incur losses?'

The Classic Error

Well, there it goes again. The classic error of confusing risk aversion with loss aversion.

On the face of it, my acquaintance makes perfect sense. If loss aversion is the mantra, investing should be avoided as much as gambling. Indeed, investing involves losses.

However, dig a little deeper and you'll realise gambling and sensible investing are as different as chalk and cheese.

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