It’s not whether you’re right or wrong
In this article, Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023) comments on a quote by George Soros.
Quote
“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros
Analysis of the quote
With the development of the business world, the financial market nowadays becomes more and more unpredictable because of the fast evolving of innovation, more different business models, and shorter horizons of business plans. And the financial market is not only about stocks (or any asset), but also the collective behavior of the crowds, markets, and organizations. In this case, the decision can be right or wrong in every trade. As an investor, if we are not able to ensure the correctness of our decision, then we need to focus on what we can control, which is maximizing the gain from the correct decision and minimizing the loss from the wrong decision. Thus, a great investment strategy and risk management strategy are vital for investors to be in the financial market.
My opinion about this quote
This quote taught us that instead of focusing on personal pride, ego, and hesitation, what matters are the outcome and the rewards. We should enhance our knowledge, be result-oriented, and be prepared to fight any risks it might occur.
Practical Implementation
Suppose you are an investor in the stock market and you hold shares of a company that you believe will perform well in the near future. You bought the shares at $9 each and you have a target profit of 44%. However, you also want to minimize your potential loss in case the stock performs poorly.
To take profit, you could set a sell limit order at $13 per share, which means that if the stock price reaches that level, your shares will automatically be sold at that price, locking in your 44% profit.
To limit loss, you could set a sell stop-loss order at $8 per share, which means that if the stock price drops to that level, your shares will automatically be sold at that price, limiting your loss to 10%.
In this example, you are using two different types of orders to both maximize your potential profit and minimize your potential loss. By using a sell limit order, you are ensuring that you sell your shares at a profit, while the stop-loss order helps to protect your investment by limiting your potential loss.
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Useful resources
About the author
The article was written in April 2023 by Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023).