Risk Management 02 (Aug 15 - Dec 25)

[winston]

Five Ways We Destroy Our Wealth

by Vishal Khandelwal

It's common if you are wealthy to worry about losing your fortune due to forces beyond your control. Like market meltdowns or economic stagnation.

But what many of us don't realize is that our own behavior may be the root of significant losses.

"The road to hell is paved with good intentions," goes a proverb.

The road to investing hell is paved with bad behaviors, and here are the five roads which initially look like paved with gold, but which often take us towards wealth destruction.
1. Inadequate Diversification
2. Trading
3. Timing
4. High Fee
5. Leverage

Daniel Kahneman was right when he said this -

A human being is a dark and veiled thing…and whereas the hare has seven skins, the human being can shed seven times seventy skins and still not be able to say: This is really you, this is no longer outer shell. So said Nietzsche, and Freud agreed: we are ignorant of ourselves.

We certainly are.

Source: Seeking Alpha

[winston]

Avoid Multiplying by Zero

by Vishal Khandelwal

Two academicians were debating on the superiority of their respective fields of study.

"What would you do if I brought Alexander The Great's army in front of you?" The history professor challenged.

The mathematician rolled his eyes and replied, "I'll enclose the army in a bracket and multiply by zero."

In an additive system, each component adds on to one another to create the final outcome. Such systems are unaffected when they encounter a zero.

Multiplicative systems, on the other hand, are non-linear because anything times zero must still be zero, no matter how large the string of numbers preceding it.

A zero can wreak havoc on multiplicative systems. Like it did to Alexander's army.

Shane Parrish, on his excellent blog, explains the functional equivalent of multiplicative system in the world of business -

Most businesses, for example, operate in a multiplicative system. But they too often think they're operating in additive ones: Ever notice how some businesses will add one feature on top of another to their products but fail at basic customer service, so you leave, never to return?

That's a business that thinks it's in an additive system when they really need to be resolving the big fat zero in the middle of the equation instead of adding more stuff…

General Motors, founded in 1908 by William Durant and C.S. Mott, came to dominate the American car market to the tune of 50% market share through a series of brilliant innovations and management practices, and was for many years the dominant and most admirable corporation in America.

Even today, after more than a century of competition, no American carmaker produces more automobiles than General Motors. And yet, the original shareholders of GM ended up with a zero in 2008 as the company went into bankruptcy due to years of financial mismanagement.

It didn't matter than they had several generations of leadership: All of that becomes naught in a multiplicative system.

Benefit of looking at the downside or what can go wrong is efficiency, writes Peter Bevelin,

"Take investments as an example - If you first eliminate what doesn't work or what won't achieve what you want, you don't have to spend a lot of time and attention of analyzing the company.

If there is a huge downside - for example a catastrophe risk of the key factors that are needed for success aren't there or any other disqualifying factors like no sustainable advantage, bad and untrustworthy management of something else - just say 'no thank you.'"

Source: Seeking Alpha

[winston]

Eight Ways to Make Money in a Turbulent Market

Investors who wish to err on the side of caution could consider one or more of the following hedging tactics:
1. Selling stocks to raise cash
2. Buying put options
3. Selling call options
4. Selling short individual stocks or exchange-traded funds (ETFs)
5. Buying “inverse” ETFs that bet against a specific stock market index or sector
6. Buying gold
7. Buying “volatility” ETFs or exchange-traded notes (ETNs) that bet on rising volatility
8. Buying long-short ETFs or funds

Source: Investor Place

[winston]

A Strange Year Prompts The Question: How To Survive A Stock Market Crash?

by Shanthi Rexaline

1. Uncertain Backdrop
2. Identifying a Crash
3. Allow the Turn of Events to Run Its Course
4. Stay Immune to the Noise Around
5. Turn Adversity Into Opportunity

Source: Barron's

https://finance.yahoo.com/news/strange- ... 18498.html

[winston]

Here are the five biggest mistakes most ordinary investors make

by Tom Ford

1. Being swept away by exciting stories
2. Investing in businesses you don't understand
3. Allowing yourself to be bullied by good salespeople
4. Investing in trends too late - when the only chance of making money is to find "the bigger fool."
5. Investing without a way to limit your losses

Source: Oxford Club

[winston]

Five Ways to Prepare for Any Market Environment

By Dan Ferris

1. Don't overpay for equities
2. Never be afraid to buy a great business trading at a bargain price.
3. Don't be afraid to hold cash until you find a bargain
4. If you can handle some inevitable losses, don't be afraid to short stocks whenever it makes sense for you to do so.
5. If you have a long-term, value-oriented perspective, avoid using debt to buy stocks.

Source: Extreme Value

[winston]

5 Steps to Take Today to Prepare for the Next Crisis

by Kim Iskyan

1. Anticipate the abnormal
2. Have a stash of cash
3. Own some gold
4. Diversify where you bank
5. Download now what you might need tomorrow

Source: DailyWealth.com

https://dailytradealert.com/2021/06/02/ ... xt-crisis/

[winston]

The biggest risk is what you don't see coming

by Alexander Green

Most of the biggest market-shaking events of the past 35 years were completely unexpected. The list includes...

The stock market crash on October 19, 1987, when the Dow lost almost a quarter of its value in a single day.

Saddam Hussein's invasion of Kuwait in the summer of 1990, which led to a spike in oil prices, the first Gulf War and an immediate bear market.

The collapse of Long-Term Capital Management - an enormous and highly leveraged hedge fund overseen by Nobel laureates - in 1998. (Then-Federal Reserve Chairman

Alan Greenspan recruited 14 major financial institutions to help supervise its orderly liquidation to avoid a full-fledged panic.)

The September 11 attacks.

The sudden collapse of Bear Stearns and Lehman Brothers - two storied Wall Street banks - in 2008. That helped kick off the financial crisis.

And, of course, the novel coronavirus that quickly turned into a worldwide pandemic.
Who predicted these extraordinary events? No one.

Who will predict the next one? No one.

That is why you diversify.

Not just to reduce your risk. But to protect the assets you've spent a lifetime accumulating from the next bolt out of the blue.

We can't know what that will be or when it will occur. So diversify your portfolio.

Because - like Harry Houdini - you won't see it coming.

Source: Liberty Through Wealth

[winston]

Stocks may fall 15% by year-end, warns Morgan Stanley. Here are some portfolio moves investors might consider.

by Christine Idzelis

Source: Market Watch

https://finance.yahoo.com/m/5212a9d0-58 ... 15-by.html

[winston]

What’s Your Bear Market Plan?

by Marc Lichtenfeld

“If the market is cut in half three years from now, could you take it on the chin?”

“Everyone has a plan until they get punched in the mouth.”

Use trailing stops to maximize your upside and minimize your downside.

Source: Wealthy Retirement

https://dailytradealert.com/2021/12/29/ ... rket-plan/