I started serious Investing Journey in Jan 2000 to create wealth through long-term investing and short-term trading; but as from April 2013 my Journey in Investing has changed to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

Since 2017 after retiring from full-time job as employee; I am moving towards Investing Nirvana - Freehold Investment Income for Life investing strategy where 100% of investment income from portfolio investment is cashed out to support household expenses i.e. not a single cent of re-investing!

It is 57% (2017 to Aug 2022) to the Land of Investing Nirvana - Freehold Income for Life!

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Sunday, 10 July 2011

Investing Made Simple by Uncle8888 (18)

Read? Investing Made Simple by Uncle8888 (17)

In Investing, Control Risk is NOT a Choice

In investing, control risk is NOT a choice; but a strict requirement to survive in the Law of Jungle in the stock market. You MUST have adequate investing capital to come back when you have fall in the stock market. But, you don't need to win back in the same manner as you have lost it. Uncle8888 has personally tested it in the last Great Bear 2008/09 and it works.

As small retail investors who have limited time and resources to analyze the companies like institutions. You also don't have access to management to have greater insight on their recent business operating environment and challenges. You must never be mistaken on this. When institutions or big boys cut losses and reduce exposures to a stock; they will certainly do it with their eyes wide open. Definitely these institutions are better informed than small retail investors. They know what they are doing. Unfortunately, there will be some retail investors who will think they are actually "bigger" than the Big Boys and "smarter" than the Sharks in the stock market and disgree.

Knowing that control risk is a not choice but a strict requirement for survival in the stock market. We should never allow a single counter to drag us down in our portfolio. It is also not wise to overly expose our portfolio to a single sector.  When a certain market condition happened, no stocks in that sector will be spared. It is only the degree of fall is different.

We should NEVER allow a single loss or a series of losses to wipe off much of our investing capital for our investing mistakes. We will continue to make future investing mistakes no matter how experience we are and regardless of the number of years we have spent in the market. There is no way that we will not lose again! We have to control risk and it is not a choice.

"You don't need to win back in the same manner as you have lost it." - Createwealth8888

Once you have fully understood Uncle8888's quote. Do you still want to average down to 40-60% of your portfolio in a single stock as you can't believe you are wrong?
Posted by Createwealth8888 at 08:19
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2 comments:

  1. financialray11 July 2011 at 14:22:00 GMT+8

    Hi uncle 8888
    Very good advice. Controlling risk in any investment is A MUST, not a choice. But I don't quite understand, if sharks and BIG BOYs have the upper hand, how much risk can we control as a retail investor?

    ReplyDelete
  2. Anonymous13 July 2011 at 06:58:00 GMT+8

    Hi,
    If sharks and big boys have the upper hand, why do some of them also fall off the cliffs and disappear forever? Example LB - Was all the top management and associated people were corrupted and profited from the collapse of the company?

    I think it's very true if you can't or don't understand at least (80% to 90%) of the risks involved, it's better to stay out of the investment.

    ReplyDelete

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