Are Your Investments Worth the Risk?

Investors love to celebrate a big win. But if they took a massive risk to get there, they might want to think twice before throwing a party.Jay Pestrichelli and Wayne Ferbert, co-authors of Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term, said that they frequently speak to investors who brag about how much they make without focusing on the potential loss."There's a psychological component," Ferbert told Benzinga. "They tend to focus and obsess about the winners and not spend enough time learning from their losses.""But if it turned out that they had to take the risk equivalent of throwing six 7's in a row on the craps table, they took too much risk to get those returns," Pestrichelli added.While simple math is taught to kids at a very young age, Pestrichelli pointed out that students do not learn a thing about risk until they get to statistics. Thus, it is a more advanced concept in a person's normal education -- let alone an investor's education."If I had to say one thing on how I would define this book -- it is a book that will teach you how to understand and measure risk," said Pestrichelli.Both he and Ferbert said they wrote the book to educate a broad range of traders."Options do take a little bit of time to work with and be able to understand," said Ferbert. "For a long time there was a lot of friction in the industry stopping you from being able to trade very effectively with them. But the industry, the TD Ameritrades (NYSE: AMTD) and Schwabs (NYSE: SCHW), have invested a lot in their options platforms, so now they've reduced that friction and they've reduced commissions so substantially that you can do it on a more cost-effective basis."Pestrichelli and Ferbert wrote Buy and Hedge after spending several years at TD Ameritrade. Ferbert ran product development and was a member of the Senior Operating Committee at Ameritrade, while Pestrichelli was the manager of the Active Trading business. They are now the co-founders and principals of ZEGA Financial, LLC, a Registered Investment Advisor.