Risk Management 02 (Aug 15 - Dec 25)

[winston]

Cramer's rules to bail out when the market finally goes into correction

by Abigail Stevenson

When Jim Cramer first started out in trading, he didn't like rules. He believed that either they couldn't really help, or they would cut his upside and prevent him from making more money.

After getting burned too many times, he learned the value of discipline.

"The rules protect you against your own bad judgment about what's going on at the companies you own or what's happening in the market overall," the " Mad Money " host said.

In order to really make money in the market these days, investors need discipline. Mistakes can cost you in trading, but if you do nothing with your money, you will have a whole lot of nothing to show for it.

Cramer constantly worries about the stocks in his charitable trust. He sees danger when the stocks in his portfolio go down as the market goes up. That tells him that someone knows something he doesn't.

One nightmare scenario is what professionals refer to as being "too long." This means the price of a stock is falling, and investors can't buy any more stock because they are out of money. Then they decide to make the terrible decision to borrow money to finance your portfolio, a move that Cramer thinks is a terrible idea.

"Stocks aren't houses. You can't fall back and live in them if you have mortgages on them. They just get taken away," Cramer said.

So, what is the magic trick to bail you out of a bad situation?

"Discipline trumps conviction," Cramer added.

He recommended that investors find their own form of discipline to watch their stocks, and have a game plan for when things go wrong.

For instance, Cramer has a system of ranking his stocks when things are good, so this way he can hedge himself when they go awry.

He also thinks it is important to "circle the wagons" on a few high-quality stocks, and be willing to buy them when they fall so you can get a better average price for your earnings.

Cramer's ranking system will get you through the chaotic times and allow you to remain cool and methodical when everyone is scrambling in chaos.

At the end of the day, Cramer wants investors to recognize that things will go wrong. There will be a stock that you own one day where there is something wrong with the company, and you don't know about it. Events will come that you cannot foresee.

The trick to reducing the damage to your portfolio is to be ready with a game plan that will bail you out in the short term and keep you in the market long term. This way, your money is ready to work for you when you need it most.

Source: Yahoo Finance

[winston]

One of the most critical moves you can make before a market correction

by Mitch Goldberg

Taking profits after a big run is not the same as being under-invested or missing out on the market.

Please scrutinize your portfolio for any investments that are not plain vanilla. The end of bull markets, in my experience, are often signaled by the invention of esoteric and exotic investments that sound good but are really a mix of ordinary stocks and bonds mixed with leverage to give you "enhanced" and "select" returns.

Source: CNBC

http://finance.yahoo.com/news/one-most- ... 53224.html

[winston]

It's high time for a blunt conversation about investing and market crashes

by Leslie Kramer

"If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent"

"You need to ask your clients, 'Would you hang yourself in the closet if the market crashed and you lost 35 percent?'"

"The more surprised a client is, the more disappointed they usually are, and that is when they tend to react emotionally"

Risk tolerance involves having a thorough understanding of someone's psychological risk tolerance and how much of a drop in their portfolio they can handle psychologically before they want to sell.

Risk capacity is more objective. It looks at how much the person has saved, the security of their income and whether they will need to withdraw assets any time soon.

Source: CNBC

http://www.cnbc.com/2017/03/13/the-scar ... yourwealth

[winston]

Five Things to Do If You Think a Cliff Dive Is Inevitable

by Keith Fitz-Gerald

Source: Money Morning

http://totalwealthresearch.com/2017/03/ ... /#deeplink

[winston]

What would you say are the “safest” places to invest when the market falls?

There are three that have the best negative correlation to the markets, meaning they move in the opposite direction:
1. Gold,
2. Treasury bonds, and
3. The U.S. dollar.

In terms of exchange traded funds (ETFs), that means SPDR Gold Shares (GLD), iShares 20+ Year Treasury Bond (TLT), and PowerShares DB US Dollar Bullish ETF (UUP) are the ones you’d want to buy if and when you feel the markets are falling.

Source: Power Profit Trades

[winston]

If you're worried about buying stocks right now, read this

Source: Daily Crux

http://thecrux.com/if-youre-worried-abo ... read-this/

[winston]

Risk Management

by Mark Ford

1. Don't invest in anything you don't understand.

The challenge is that it's sometimes easy to convince yourself that you understand something when you don't. But you must know the business inside and out.

You must know how it makes money, which products are most profitable, what particular problems it faces, what sort of financing it needs, etc.

2. Never invest a lot of money in any single asset.

When it comes to stocks, this is called "position sizing." You might say, for example, that you will not spend more than 5% of the money you have allocated for stocks on any particular stock, or no more than 1% of your net worth on any particular stock.

3. To reduce risk further, always diversify your investing across a broad range of asset classes.
This is called asset allocation, and some studies suggest it is the single most important factor in acquiring long-term wealth.

Source: Daily Wealth

[winston]

How to Smell A Rotten Company A Mile Away

by MICHAEL LEWITT

1. Beware companies that inflate their earnings and misrepresent their true financial condition by reporting large non-GAAP earnings adjustments.

2. Leverage is toxic (particularly when it is incurred during a period when interest rates are lowered by central bank policies to artificially low levels). There are very few exceptions.

3. Companies that engage in unethical behavior are not investable. How a company makes money is as important as how much money it makes.

4. Companies that provide confusing or incomplete disclosure are also not investable.

5. Wall Street analysts are paid to promote the stocks of their clients, which renders their recommendations corrupt and useless (with very rare exceptions like the folks at independent firms like CLSA). Anyone who follows Wall Street’s investment recommendations is a fool.

6. Heavy hedge fund ownership of a stock does not mean that the company was discovered by “smart money” – it means that short-term investors crowded into a trade.

7. Any fund that invests 20-30% of its assets in a single investment is behaving recklessly (see under: The Sequoia Fund, Pershing Square Capital Management), subjecting its investors to inappropriate risk, and should be intensely questioned by its investors.

8. The fact that big name investors own a stock is no guarantee that the stock is a good investment. The trail of broken stocks owned by well-known hedge funds, private equity funds and other large investors grows longer by the day – SUNE, OCN, CNX, CHK, SHLD, LNG, GLEN.L, most energy stocks, etc.

9. Investors need to think for themselves and not be swayed by the media and celebrity investors. The financial media is uninformed, simplistic and sycophantic in its coverage of activist and other large investors who, in case anyone notices, generate poor risk-adjusted returns with very few exceptions.

10. Ignore pretty much everything written by the mainstream press. Instead, the television presenters at CNBC, Bloomberg, and other mainstream media were full of praise for a company that pursued a toxic business plan that preyed on the sick.

Source: Sure Money

http://suremoneyinvestor.com/2016/04/ho ... /#deeplink

[winston]

Where to Hide When the Global Economy Crashes: “Safe Harbors Are Few and Far Between”

By Mac Slavo

Certain pockets of relative safety like Scandinavia, Canada, Costa Rica, Chile or New Zealand could prove to be a bit more prone to stability, than to collapse.

Source: SHTFplan.com

http://www.thetradingreport.com/2017/04 ... r-between/

[winston]

This is a good moment to sell everything

‘Markets could be staring into the jaws of a very vicious downward spiral’

Investors will need to pull in their horns and reduce equity exposures, but the options are limited.

German bunds are mainly steeped in negative territory and holding cash remains a zero-return play.

Foreign-exchange-wise, Trump is dead set on talking down the dollar, the euro is vulnerable to severe political setbacks in the next few months and the yen remains dogged by chronic deflation doubts.

The Swiss franc remains an expensive alternative for investors.

It is no surprise gold offers so much allure for those seeking protection.

Source: SCMP

http://www.scmp.com/business/global-eco ... everything