Perfection Is Impossible.

"Most people acknowledge that losses will happen regardless of the type of business venture. A light bulb manufacturer knows that two out of three hundred bulbs will break. A fruit dealer knows that two out of one hundred apples will rot. Losses per se don’t bother them; unexpected losses and losing on balance does. Acknowledging that losses are part of business is one thing; taking and accepting those losses in the markets is something else entirely. In the markets, people tend to have difficulty actively (as opposed to passively as in the case of the fruit dealer and the bulb manufacturer) taking losses (i.e., accepting and controlling losses so that the business venture itself doesn’t become a loser).

This is because all losses are treated as failure; in every other area of our lives, the word loss has negative connotations. People tend to regard the words loss, wrong, bad, and failure as the same, and win, right, good and success as the same. For instance, we lose points for wrong answers on tests in school. Likewise, when we lose money in the market we think we must have been wrong.” - What I Learned Losing a Million Dollars (Jim Paul and Brendan Moynihan)

Everyone knows how to win; but, few know how to lose! Yet the secret to making money in the market is knowing how to lose, or how to control your losses. Listen to the pros:

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money; focus on protecting what you have.” - Paul Tudor Jones

“The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.” - William O’Neil

“One investor’s two rules of investing: 1) Never lose money. 2) Never forget rule No. 1.” -Warren Buffett

All of those pros have different market philosophies. They have contradictory strategies for making money.

Some are traders; some are value players; some are growth-stock advocates; others are emerging-growth seekers; etc., etc. However, the message is clear: Learning how not to lose money is more important than learning how to make money. And in learning how not to lose money you have to evaluate risk.

Verily, most investors don’t want to be wrong and take a loss. They stubbornly seek perfection – a profit in every trade or investment. And, the neurotic pursuit of market perfection is the Achilles' heel of most investors. Perfection is impossible on trading the markets!

As Martin Sosnoff said in his book Silent Investor, Silent Loser: “There is only perfection in the cemetery above Omaha Beach. There no crabgrass grows among the bright green blades cropped three inches above the earth. It is truly as Walt Whitman has said, ‘The hair of the Lord.’ And the crosses stretch out in that echelon of perfect longitude. The only perfection is in death.”