ADVFN Guide: 101 Ways to Pick Stock Market Winners by Clem Chambers

Author:Clem Chambers [Chambers, Clem]
Language: eng
Format: epub, mobi
Tags: finance
ISBN: 9781908756008
Publisher: ADVFN Books
Published: 2011-10-31T00:00:00+00:00

Know your risk

Signal: Long

Difficulty: 7

Risk is badly understood; in fact it may even be a misnomer. Some people would call buying a crazy small cap stock, run from a faraway place by people whose names can’t be Googled, high risk. I wouldn’t. There is practically no risk, you are almost certain to lose your money.

It is important to know the risks you are taking and to look for what might bite you. The credit crunch was caused because 99% of people in the financial markets didn’t know where the risk was. They thought there wasn’t any.

The risk they thought they had removed had just been scraped up into a giant pile and stuffed in a basement somewhere. When it finally escaped we all know what happened.

If you have a handle on the risk you are taking you can manage it and use it to make you more money, but the amount of risk doesn’t come written down on a label, you just have to work it out. A good place to start is to imagine it is a lot higher risk than you might have guessed.

Another recommended way of getting your judgement of risk right is not to believe a word of what any party tells you. Pretend you are Sherlock Holmes at a murder and try to piece together the ‘real story.’

Try to understand why the price is where it is, then you can counter that with your arguments.

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