Most investors are always looking for a good investment opportunity. However, over the long-term, finding good investment opportunities is step two, not step one. The first thing all investors must do in order to be successful is to learn their own personal "risk tolerance" level. No matter how appealing an investment might look, if it does not align with your own level of risk tolerance, it is a bad investment -- for you. When an investor does not understand both their own personal tolerance level and the risk potential of a particular investment, it becomes a recipe for real losses in the market.

All investments come with risk. It is unavoidable.

The question is how much risk you can personally tolerate with any given investment premise. Some investment premises require the assumption of a great deal of risk. Identifying and quantifying the risk is a crucial element in making sure that the risk involved does not exceed your risk tolerance.

When actual risk exceeds an investor's risk tolerance level, emotional difficulties often interfere with an objective judgment of the validity of the premise. That needs to be avoided, because judgments of the validity of an investment premise should be made with as little emotional involvement as possible.

There are many types of risk, of course, but with respect to an investor's risk tolerance level, there are three basic types of risk to consider: actual loss, volatility, and opportunity cost.

Actual loss: selling and closing out a position at a loss. Never the objective, of course, but you must learn to live with this at times. In fact, when an original investment premise is proven wrong, you must sell. If you don't, you are then holding an investment without a premise, never good.

Volatility: paper losses. Some people simply cannot tolerate the existence of paper losses at any given time. If extreme volatility causes you to get nervous and worry, it refocuses you on the stock price instead of on looking for data to confirm or repudiate your investment premise. (This can also happen when a stock rises too much, too fast, but making sell decisions mistakenly for a profit is okay.)

Opportunity cost: missing out on something else. By allocating your resources to one investment, you deny yourself other opportunities, by definition. This risk needs to be identified, as it is the only way to manage a complete portfolio. Opportunity cost can become an emotional distraction, such as: Why isn't my stock moving? The rest of the market is! When this happens, and the sentiment causes you to either doubt your investment premise, or to cling to your position even more strongly because you are certain the stock will one day redeem itself, your risk intolerance is clouding your ability to judge your own investment premise. This is extremely common with concept stocks, unfortunately, where proof-of-concept is extremely critical.

These three risks are by no means exhaustive, but are extremely common. As examples, they are intended to highlight common risks that all investors must address.

Understanding your own level of risk tolerance is essential.

Many people who lose money do so not because they buy a "bad stock," but because they create a mismatch between their risk tolerance (or intolerance) levels and the types of investments they chose. A lack of true understanding of the latent risk in the stocks is only partly to blame; the failure to truly understand one's own level of risk tolerance takes the rest of the blame.

When you do not fully understand your own level of risk tolerance, you may allow yourself to take a position on a valid investment premise, but whose very premise requires assumption of risk. Then when that risk materializes, your intolerance prevents action.

When your tolerance level is well-matched to your risk level, and the risk materializes, you should be able to effortlessly, and with little emotional friction, react appropriately. This may mean selling or simply remaining calm, depending on the type of risk that occurs.

For example, an investment premise in a highly valued growth stock may be perfectly valid, based on knowledge at that time. But when an event, such as a poor earnings report or a substantial revenue decline, causes the stock to disprove the very investment premise, you must sell, even it means taking a loss.

However, many investors do not, as the fear of actually selling at a loss prevents them from action. Often these investors try to comfort themselves by saying, "it isn't a loss if I don't sell." Frankly, such an approach often leads to bigger losses over time.

A discomfort with selling at a loss creates a new position of holding a stock for which you have no investment premise. This is the worst investment premise of all, one which we call "the inadvertent long-term hold." With no premise for the stock at this point, there are no standards by which to judge the stock's future potential.

Why do stocks lose 50% overnight when a horrible earnings disappointment comes out?

Ironically, the severity of a stock decline in an example like this comes because other holders of a stock have no difficulty dumping the stock when the basic investment premise is disproved.

Because large holders simply say "Sell it at the market" without much regard for where the market eventually prices the stock. The fear of holding a position with a negated premise is greater than the fear of taking an actual loss. This is precisely the correct approach, over the long term, however.

Most of the great investment possibilities come with great potential risk. It is the nature of the game. If you want to take a chance on large rewards, you must take large risks. If you cannot tolerate those potential risks, you should avoid those types of investments.

However, there are ways to handle investment positions that might test your personal level of risk tolerance. These loss prevention approaches can be used to make yourself more comfortable with both volatility and actual loss, as well as opportunity cost loss.

Actual loss can always be mitigated with hedged positions that are contrary to the basic investment premise. For example, with a long premise, you can buy puts that will limit your loss on the stock to the lowest possible level you can tolerate. If that level involves out of the money puts, the cost can be quite minimal.

Both of these approaches limit the upside, however, if the basic investment premise turns out to be correct. However, if that is the only way you can actually impact your ability to take a riskier investment premise that you believe in, the limited upside is the correct approach for you.

The opportunity cost risk is best mitigated by building a complete portfolio, and not overemphasizing any single investment. The hope here is that at least one other stock performs well enough to offset the envy and disappointment you feel when your chosen stock fails to perform.

At Briefing.com, we are continually looking for new investment opportunities of all types, from very short-term investment horizons of days or weeks to long-term investment horizons of five years. All of these investment ideas come with associated risks, which range from the company failing to achieve its individual potential to market risks that will impact all stocks. For the most part, we try to identify the most prominent risks, when they can be foreseen.

However, the decision regarding whether any investment idea is appropriate for you is one which only you can make. A "good" investment idea starts with a personal understanding of your own level of risk tolerance. Obviously, we do not have knowledge of the individual risk tolerance levels of our readers.

This means that the final decision on whether an investment idea presented at Briefing.com is "good" or "bad" rests with you. Step one of the path to successful investing is a good understanding of your own tolerance for risk. Step two is ensuring that your actual investments are aligned with your tolerance level.