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Hirschhorn: Manage Risk or it Will Manage You

To become Great at anything, including trading, you have to have three things:

  1. A passion for what you do.
  2. An unwavering internal confidence.
  3. Great risk management, or 1 and 2 won't matter.

The recent financial struggles of two formerly great athletes are a reminder that risk management is vitally important, no matter how much money you have.

First is former Cleveland Browns quarterback, Bernie Kosar. Kosar is smart, talented, hard working, generous and an over-achiever. Now in his mid 40s, he is divorced, his body is falling apart and he recently filed for bankruptcy. Bernie may be broke, but he's not broken. Why? Because he's a winner and he knows it. Kosar says adjusting to regular life is hard, making money is not. Kosar worked hard in the past to win and will do the same again to get back on top.

And then, there's Lenny Dykstra. The guy's nickname is nails, and no one played professional baseball harder. But Lenny's been hammered by extremely poor risk management and had to file for bankruptcy. Is he a genius? Probably not. But he is an entrepreneur and a winner -- after all, Dykstra did start a car wash franchise and sell it for tens of millions of dollars.

The lesson: You can have passion and internal confidence in abundance, but without great risk management, failure is the likely outcome.

Think better, invest smarter.

_________________________

Doug Hirschhorn is the chief executive officer of Edge Consulting, a firm specializing in “Peak Performance Coaching.” He holds a Ph.D. in Psychology with a specialization in sport psychology, and has offices in New York and South Florida. His client list includes elite athletes as well as many of the largest banks, hedge funds and financial institutions in the world. Doug is presently at work on his new book, 8 Ways to Great (Putnam, 2010).

Have a question for Doug? You can reach him through his Web site, DrDoug.com

Disclaimer: Doug Hirschhorn's expertise is in the psychology of achieving peak performance. He is not a financial advisor and does not make trading or investment recommendations or provide trading or investment advice. He is an expert on the mental game. Although Doug Hirschhorn has a Ph.D. in Psychology with a specialization in sport psychology, he is not a licensed psychologist and does not provide therapeutic, clinical or counseling services.