I remember the first time I seriously asked my father what he did for a living.  Just a little background before I get to the punchline here, my father is a real estate attorney, mostly large commercial and residential construction.  He works with some of the largest property developers in the country.  Anyway, I’m 12 years old and I ask him what he does, and he replies simply, “I spend all day stopping people from doing stupid shit.”

He went on to explain that although the developers he worked with were very smart individuals of course, if left to their own devices they would bankrupt themselves quickly by simply doing stupid shit.  I worked for one of them in college, and I can tell you, he was right.

My father is in a sense, a risk manager, someone who tells the developer what he legally can and can not pull off.  As well, he advises the developer in matters of negotiation, and keeps them from saying stupid shit that could wreck their plans.  What he does is not all that complicated, he’s said as much to me in the past.

The lesson here that I’m trying to get across is two fold.  First, everyone needs a risk management plan, or a risk manager standing over their shoulder.  Left to our own devices, we are all most likely to screw stuff up.  The second point here, is that one slip up can cost us dearly.  In real estate, a slip of the tongue during a negotiation can cost you the whole project.  In trading, one bad trade can blow your returns out of the water, forcing you to claw your way back for months.

It’s easier said that done, but at the end of the day your job as an independent trader or asset manager is to avoid doing stupid shit.  This means not taking out sized positions, trading in markets that aren’t fit for your style, drifting in style, or trading as if you were gambling.  If you’re a good trader, the rest will take care of itself.