The relationship between risk and money has been observed since the dawn of our time.
We learn to love putting in hard work for money, but we often forget the immense amount of risk that goes into it. And risk comes in all forms impacting your money, career, family or health.
I’ve come to learn the importance of seeing this hidden layer of risk. Risk isn’t just “risk.” It’s slightly more abstract. It can impact the way you live and enjoy life. It’s there, hovering above, nudging and prodding. The guy at the beach living on coconuts has no risk. His life is pretty simple. Wake up, eat the coconuts, chill by the water.
Risk is not just how much you’re willing to lose on a bet or investment or decision, but also the impact it will have on your mind while you wait for that risk to play out. It is our mental capital. I have come to learn first hand the multidimensionality of risk.
I am not the first person to talk about this. And I will not be the last.
Mental capital is everything. It is your stress, your anxiety, and amount of sheer responsibility you put on your brain. And your brain is an extremely complex muscle. It gets put to work constantly, firing off, connecting dots, and calculating.
No marathon runner ever sprints the entire time. And no marathon runner ever runs back-to-back-to-back marathons with no time to rest. What’s strange, though, is that when it comes to our minds, we never think like that. We run marathon after marathon. We place bet after bet. And we rarely stop to think – is that really worth our mental capital?
There is very little science that attempts to explain that question. There’s beauty in giving your brain and body a rest. This isn’t just disconnecting or unplugging, either. This is different. What I mean is giving your mind and body time to live without any risk. That’s why even a vacation isn’t really a break from risk. Because those things are still on your mind, still something that could go wrong while you’re away.
There aren’t many professions out there that will put you through as much mental anguish as investing or trading. It is straight up brutal. I luckily have lived to tell about it and I pour some out for those who came before me but didn’t put it down on paper. One question I have learned to ask myself: is that amount of risk also worth the mental capital?
Everyone needs to be that one guy or girl on the beach living on some coconuts.
No matter the outcome, the mental capital that goes into a big bet is rarely ever worth the payout. The mind is too valuable. Living a meaningful life with a healthy mind free of that risk is worth something that has no price tag.
While this all sounds wonderful, there’s still a twist here. Let me quickly explain.
It’s essentially impossible to live without any risk. There will always be risk around you. From your own personal bets, to your family and your work. The risk is that one of those decisions goes wrong and weighs on your mind. So perhaps the real goal is building around you in a way that fits the risk your comfortable with beyond just your capital or portfolio or trading account.
The best investors and traders I know always talk about managing your monetary risk. They are right. But few will tell you to also manage the risk related to your mental capital, your mind. At the end of the day, the answer to that, is where the real wealth is.
That’s all for now. Yo I should I write more deep posts more often.
(Side note: maybe this is the real reason why Treasury Bonds have been in a near 50 year bull market. If you saw my post the other day, you get it. Because it’s really about more and more people who are ditching all the risk to their mental capital. Buy the Treasuries and walk away. 😂)
To read my lessons from 2016 and 2017, please go here and scroll down.