Risk Management > Big Returns

Back in late 2020 and early 2021, GoPro stock became one of the hottest stocks on Wall Street. It's share price grew from a mere $3 per share all the way to $13 per share, making it one of the highest returning stocks in the market.

There was an investing influencer (1 million+ followers) was trying to convince me to invest in GoPro stock. He said, "GoPro's business is taking off. Growth is spectacular. Things are only going to get better for GoPro from here."

But the truth is that there were also lots of risks with the comapny. What if the company didn't acheive break even? What if consumers didn't like it's products as much as investors thought? What if the company doesn't grow as fast as investors think?

The influencer prioritised picking a winning stock over managing risk, so he invest in GoPro at around $10 per share.

By contrast, I never beleived returns should supercede risk management. Before ever considering the upside, an investor's first objective should be to manage the risk of their investment. So I didn't invest in the company.

Guess who was ended up better off?

Myself.

The stock went on to decline 95% to a mere $0.50 per share as of the time I'm writing this. The influencer lost nearly his entire investment in GoPro. By contrast, I had doged a bullet that other people got stuck by.

That taught me an important lesson about investing: getting big returns should never supercede risk management. Risk management comes before trying to make big bucks. In other words, it's more important to avoid loser investments than it is to pick winners.