subject: Joseph Wang Financial - The Opportunity Cost [print this page] The opportunity cost is something every investor should keep in mind permanently. This is what is left to gain by not having the money invested anywhere else other than that found today.
In theory everyone (except for rare exceptions) is provided at a cost incurring opportunity because you can not have all the assets invested permanently in the perfect investment.
In practice it is unrealistic to continually seek the best investment the world but in many cases could improve the distribution and return on equity if you bear in mind this opportunity cost and analyze different options to the full extent of each investor.
So the approach that should be done is not "I find the best investment the world" but "I have spent my estate in the best way I know how?".
Although the opportunity cost should be monitored continuously, always together with the risk and the taxation of each option, there is a situation where special attention should be studied, when the investor has made a mistake in one of their investments.
It is virtually impossible, if not totally impossible, never make a mistake to invest. The important thing is to reduce the number of errors and manage them as best as possible when they occur.
Many investors are reluctant to recognize first and repair after having made a mistake. It is a mistake, forgive the repetition, clinging to a bad investment for not only acknowledge that it has made a mistake. Decisions should be made rationally and when it detects an error should be recognized immediately and start thinking about how best to manage it. In the vast majority of cases is much more sensible and profitable to seek a better alternative, with a cool head and without rainfall leading to constantly jump from one investment to another, to sit still and unable to react on a bad investment waiting the fate and time become a good investment.
It should be more afraid not to analyze the opportunity cost to recognize and repair an error.
by: Joseph Wang
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