Unit 2 · Level 2 · Money that must never go in
What you can afford to lose
Everyone says invest only what you can afford to lose. Almost nobody runs the test. Here it is: if this went to zero tomorrow, what in your life actually changes? If the honest answer is 'I move house' or 'I cannot pay the December bills', the amount is too big. If it is 'I am annoyed for a month', it is inside your limit. Run the test before you have a position, not during a fall.
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What you get asked
What is the practical test for an amount you can afford to lose?
The test is about your life, not about the asset. Two people can hold the same €5,000 position and only one of them has to move house if it disappears.
Match the honest answer to what it says about the size
There is no universal percentage. The line sits wherever a total loss stops being an inconvenience and starts being a change to how you live.
You have €12,000 of genuinely spare money and decide no single speculative position may exceed 5% of it. What is the maximum position size?
€600. Notice the sizing rule existed before you found anything to buy. That order is what makes it a rule rather than a rationalisation.
Deciding the maximum size ___ you find a position is what stops excitement from choosing the number.
Once you are looking at something you want to own, any number feels justifiable. A limit set in a calm hour is the one that survives a loud one.
You tell yourself you can afford to lose €5,000, but losing it means missing three months of rent. What is true?
Saying the words does not make them true. The test is what the loss does to your life, and three months of rent is a change of address, not an annoyance. 🐜
The rest of this unit
Some money has a date attached, and a market cannot be told about the date.