Thanks for bringing that up. I’ve always been intrigued by the “pain from loss is more powerful than pleasure from gain” phenomenon.

In fact, it’s one of the main ideas behind this blog (although I suppose I don’t talk about it often). As far as I can tell, the pain of loss is also directly proportional to how often you think about it.

I’m sure that for those who check their portfolios everyday, the current market decline has been far more emotionally painful than for those who merely take a look every few months.

Another reason to act conservatively (not that I follow this suggestion) is the asymmetrical response we have to loss versus gain.

If you feel twice as bad when you lose 25% as you feel good when you gain 25%, that’s a clear reason to err on the side of caution.

But then again, perhaps I’ve just worked my way around back to the definition of risk tolerance?!

It can hurt when outsize gains elude you – as me or anyone else who wasn’t invested in dotcoms in 1999 can tell you. But not as much as the losses 2000 pained those who were, I’m sure.