Upside and Downside

Kekich Credo #13 - Protect your downside. The upside will take care of itself. Cut your losses short – and let your profits run. This takes tremendous discipline.

Here are the notes I made while thinking about this Statement.

• Protect your downside. The downside of a situation is the part that is less positive, less pleasant or less useful than its other aspects. Downside protection on an investment occurs when techniques are used to prevent a decrease in the value of the investment.  Downside protection strategies aim to reduce the frequency and magnitude of capital losses.  Large losses require an even larger gain for a portfolio to fully recover. A significant loss means plenty of catching up is necessary to get back to the original starting point.  Hence it is important to protect your downside.

• The upside will take care of itself.  Upside and downside are two sides of a coin that must be evaluated.  The upside of any investment means it has the potential to increase in value.  But when caught on the downside, the investment has the potential to decrease in value.  Focus on protecting the downside and let the profits or upside take care of themselves.

• Cut your losses short - and let the profits run.  This famous saying in the stock market means exit early while you’re running into loss and have patience while you are incurring profits. Resist the tendency to sell profitable positions too early. 

  • In martial arts sports like Judo, participants learn how to fall before learning how to throw.  They practice the skill of falling until it is as natural as breathing.  No matter how many times they are flipped, they can rise to fight again.

  • No one wants to sell for a loss.  But you can take a small loss and still be fit enough, both financially and mentally, to invest the next day.  Cutting losses quickly prevents you from taking a devastating fall that is too steep to recover from.

• This takes tremendous discipline. Discipline - staying the course.  A disciplined person is able to carefully control the way he or she works, lives or behaves in order to achieve a goal.  Disciplined people are true to their word.  When they make a decision to do something, it is set in stone.  Often they don’t even need an accountability partner to keep them on track. Others can benefit from their organizational skills and their reliability.

Ask yourself:  Am I a disciplined person?  Can others rely on me? Do I protect my downside?  Do I have the patience to let the profits run? This Credo talks about the upside and downside of a situation.  What have you discovered about yourself as you ponder the 13th Kekich Credo?

# living life abundantly     # published author