Bill Gates is a prime example of a successful person whose success can be attributed to risk. Part of his success can be attributed to his decision to attend a high school with a computer, which was a roughly 1 in 1 million chance in the '60s.

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There are several ways to account for risk in investment decisions. First, diversification is key. By spreading investments across a variety of assets, you can mitigate the risk associated with any one investment. Second, understanding and analyzing the risk-reward trade-off is crucial. Higher risk investments often come with the potential for higher returns, but also higher potential for loss. Third, using financial tools and models, such as the Capital Asset Pricing Model (CAPM), can help quantify risk and incorporate it into investment decisions. Finally, staying informed about market trends and economic indicators can help anticipate and manage risk.

There are several ways to account for luck in investment decisions. Firstly, it's important to understand that luck can play a significant role in investment outcomes, and it's not always about making the 'right' decisions. Secondly, diversification can help to mitigate the impact of luck. By spreading investments across a variety of assets, you can reduce the risk of a single unlucky event causing significant damage to your portfolio. Thirdly, it's important to have a long-term perspective. While luck can have a big impact in the short term, its influence tends to diminish over longer time periods as the effects of skill and strategy become more pronounced.

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The Psychology of Money

How should investors manage the inevitabilities of risk? What are the most powerful wealth-building...

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