We have all heard people say that in order to succeed one must first experience failure. But when it comes to investing, the saying takes on a whole new meaning.
Think of it this way, while you can surely invest your money in market funds or CDs for a safe and minimal return, you can follow in the footsteps of venture capitalists instead, having 8 out of 10 of your investments fail, so long as the remaining two bring in a big profit.
While hedging your bets among several different investments instead of putting all your eggs into one, safe basket, you are basically allowing yourself to place several small bets simultaneously and giving yourself time to see which one will pay off the most. The trick then becomes minimalizing your losses as much as possible and riding out the wave.
This is the life of a successful entrepreneur; while most people see these elite few as risk-taking semi-lunatics, the truth is that the most successful ones always have a backup plan, a safety harness.
They don't enjoy the risk, but they understand that that is just part of the package- and then they try to minimize it as much as humanly possible. Most seasoned entrepreneurs will tell you the same thing: you need to figure out how much you are willing to lose before you start your next venture.
Successful entrepreneurs follow a few basic rules. For starters, never bet more than you expect returned. And, maybe even more importantly, never bet more than you are willing to lose.
The mental repercussions of losing more than you can afford will harm you much more than the actual dent in your wallet. In other words, figure out what your Acceptable Losses are.
While this strategy will give you a peace-of-mind knowing that even if you lose, you won't be out of the game entirely, it also allows for you to try again if you do end up failing.
With no risk, there is no return. Failure itself is always part of the journey- as long as you spread your bets as much as you can while still leaving the possibility of acceptable return, you will succeed sooner or later.
Paul Hudson | Elite.