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.
[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.
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