Investing in the stock market carries with it an element of risk. This comes because of the possible volatility of each companies stock and the stock market in general. There is a potential of higher investment returns because of this potential risk. Some investors have the attitude that this risk will naturally lead to loss which will naturally lead to ruin. This is largely due to the get rich investment schemes that are so readily available. Many who have gone for the quick buck have either made a killing or have lost their shirt. There are a lot of people advocating day trading. The problem with day trading is that if you win, you think you have a winning system and you do it again. The second time is easier than the first. However, not every transaction leads to a gain. The same principle applies in gambling. There are winners and losers but overall the casino wins.
The correct attitude with risk is to acknowledge it, respect it and work with it. Then you can make good decisions that will help you to buy shares in growing markets and stick with the investment to a profitable return. In fact, investor behavior has been thought of as the biggest risk. This risk is the risk that an investor will be so incompetent that he will blow a game he should have won. Economists are constantly surprised that investors do not do better than they do. The potential for a winning trading system is there for the taking. Investors just need to do the right thing to achieve it. Investors are not rewarded for irrational behavior.
Another type of risk is of course the market risk. This is the risk that the economy will tank or the investors as a group will get skittish and the market as a whole will go down. Individual businesses risk is another type of risk. This is where the business makes bad decisions or they have a bad year. Then the stock market punishes them by the investors selling out of a perceived bad situation. Those who do not jump first get stuck with the losses. Of course, perception could be wrong and a companies stock could go up after a slight dip. Not having 20/20 vision, the investors do not know this. The point with business risk is to invest in strong companies that have potentially long term outlooks. This will help with business risk.
Another step to take that shows respect for investing risk is to diversify your investments. Be willing to spread your investments in different industries and types of asset classes. Then if one type of asset class has a bad time, another type might be winning. This will help you to have an overall winning strategy.
The moral of the story is to know the potential risks, deal with them and have a long term attitude toward your investments. Then even if the market goes down, you will be able to ride it out. In 1987, the stock market had a huge downturn but just a few weeks later, it was back up. Long term investors still did all right.