Risk Management: The Cornerstone of Successful Investing

It’s hard to discuss investing without including a discussion of risk. Without taking risk into consideration, you can all too easily lose everything. A proper understanding of risk, on the other hand, can help you to be a far more successful investor. In this podcast, Brandon, Christine, and JC discuss the importance of risk-management and how to use it in your trading.

Topics Discussed

[03:04] – Week in Review

• Index moves this week:
  • S&P 500: +3.8%
  • Dow: +3.3%
  • NASDAQ: +4.2%
  • VIX: -9.5%
• It’s a horrible time for bearish trades with the market going up so much.
• We still don’t know if there will be a stimulus bill or not.
• Small-cap stocks have risen 11% in the last two weeks alone.
• There has been a move from growth into value.
• Many stocks, such as Zoom (ZM) are at historically high valuations.
• Economic data this week:
  • Sept Final Markit Services PMI: 54.6 V 54.6E
  • Initial Jobless Claims: 840K V 820KE
  • Continuing Claims: 10.98M V 11.40ME
• No matter when a vaccine comes out, the economy will take years to fully recover.

[14:29] – Risk Management: The Cornerstone of Successful Investing

• Position sizing is the best way to control your risk.
• There’s no room for hope in the market.
• Even if a move is very unlikely, it’s still going to happen sometimes.
• The more risk you take on, the more potential profit you can receive.
• The only non-risk trade is the risk-free interest rate.
• It’s too risky to trade options on small accounts.
• People don’t believe they can actually lose money.
• The danger of making trading too accessible.
• Whose responsibility is it to ensure the safety of the investor?
• Try to disprove your trading assumptions.
• Are you willing to accept the max loss?
• “Due-diligence” is more than just a catch-phrase.
• “If you make 1% per day, it means that you’re trading too big.” ~ JC
• Penny stocks aren’t worth the risk.

Resources

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