Trader's Thread 04 (Feb 12 - Jan 20)

[winston]

Skin in the Game

by Vishal Khandelwal

Having skin in the game means being exposed (equally as other stakeholders) to both positive and negative consequences of an outcome which was made possible by your decisions/actions/approval.

Superficially, the concept of 'skin in the game' may look like a case for morality in human transactions but if you go deeper, you will find that it's a wonderful trick for improving our own decisions.

When you own 50 stocks and one goes to zero, your portfolio isn't going to move down by more than 2 percent (assuming you had equal allocation for each stock).

Which means you're not really bothered about a couple of bad decisions for it's not going to create meaningful damage to your net worth.

However, when you run a relatively concentrated portfolio of 10 stocks, you'd be more careful about choosing those stocks. Won't you?

Source: Seeking Alpha