Taking intelligent risk means you can make and lose money

We all talk about the big wins.
But no one really talks about sharing bad news.
Why does it feel so bad?

The best public equity traders make money 52% of the time.
And studies say per dollar of P&L, people experience twice as much pain from a loss versus the pleasure of a gain.

While being in the risk business means taking some losses -- or in Private Equity, having a business underperform the underwriting assumptions,
There's a reason it feels so bad!

Your rational brain can be soothed by the facts of reality: taking risk involves taking losses at some point. You gotta keep playing the hands and over time you'll hopefully net cash.

Your emotional & fight or flight brain hijacks the rational salve.
The survival brain says "RED ALERT. Your imperfect performance means everyone will blame you for making bad decisions. They'll know you never belonged here in the first place. You were just lucky in a rip tape... this is the evidence they needed to get rid of you."

Your body sends you this message often unconsciously. And if you internalize this message, this makes you FEEL BAD - sad and helpless, or angry and aggressive towards others.

While we can all acknowledge our investment teams are here to make the best collective fiduciary decisions for the LPs as events play out,
the survival brain has a powerful voice in moments of setbacks and losses.

So have some compassion for yourself and others in moments of underperformance. Beyond the rational brain lies survival circuitry that's ringing the existential alarm.

Experienced investors get past this vomity feeling over time. But it takes a while and isn't a pleasant feeling to get used to.

Happy Friday!

#privateequity #hedgefunds #investing #buyside