Re: Re : What Is Your Real Risk Tolerance?
AskAsa
4/26/2011 7:28:24 PM
You got it Yalanand. We're impatient. We don't look at the long-term. We have USA Today attention spans that keep most of us from being broadly informed.
risk tolerance
impactnow
4/26/2011 2:14:41 AM
Bravo-excellent point slow and steady can win the race, a point lost on so many novice investors. The great stock pick mentality has become so much part of the investment culture that so many believe you need that one great stock to get rich rather than a solid portfolio with steady modest gains. Time and compounding are our friends high risk and volatility are not.
Re: Risk Tolerance when the Clock is Ticking
Value Hiker
4/21/2011 2:58:53 AM
Street Smart:
As you may know these three rules are from Warren Buffett's Annual letter to shareholder. I am not the guy who invented them. But I try to follow them
Do I ever lose money on my equity investment ? You bet, I lost money many times. But I am happy that I greatly improve my chance of winning by following these rules.
I think what Mr. Buffett tried to say in rule number 1 is: you shall be very serious about preserving your principle and never take unnecessary risks.
As Buffett's Tutor, Ben Graham once said: An investment operation is one which, upon thorough analysis, promises safety of principle and a satisfactory return. Operations not meeting these requirements are speculative.
Did Warren Buffett lost money, of course, he lost money many times, from Berkshire Company itself, to the Conoco Philip most recently, but he did manage to become one of the richest man in the world.
In stock market, there is always risk of losing money. The loss is due to either bad luck or bad judgement. You can not avoid the risk caused by bad luck, but you can minimize the risk caused by bad judgement if you do your homework.
Re : What Is Your Real Risk Tolerance?
yalanand
4/20/2011 4:05:12 PM
Andy,
I totally agree with you that small increase in return, through compounding, can make an enormous difference over time. Unfortunately everyone in the market wants to become rich overnight. So by trading for shortterm they not only loose tax-paid money (when we loose $x in market we are actually loosing $x+ tax paid on $x) but also they get discouraged from entering the stock market.
I think you might have it half right, the .com bubble of the late 90s did give some people a taste for large returns, but it also gave many a fear of even greater losses. For me stock options were just an added bonus of working at a .com, the big pay off was working with a company on the cutting edge. And though I did not make millions, the knowledge I gained has been the biggest payoff.
I have been involved with several .com startups since then, and though some people start them In hopes of getting rich quick, the majority start them in order to see an idea come to life. That is the American idea of risk and reward that can not be overlooked.
Re: Money over time
Broadway
4/20/2011 3:32:29 PM
Behavioral economics is fascinating stuff. Thanks for more proof. I wonder if there's a peculiar American strain of miscomprehension of risk-reward, caused by the all-American fascination with get rich quick schemes. The .com bubble and the rush into the market by every Joe schmoe out there got it into the public consciousness that we all should be earning 20% annually off our portfolios, or better yet, launching our own Internet company! What's 2% but chump change?!
Very true, I did mix up where my money went, and that did play a part in the account being up overall, but I have other accounts that are lower risk, just as, if not more diversified and they have not performed as well. I am sure there are other factors at play, but still this is one of my most consistent accounts. I have made smaller (much smaller) more risky, unconventional investments in the past with mixed results some have been great gains, while others have been total flops. That is why I limit those riskier investments to a few per year, I don't have that much risk taking in me.
Re: Money over time
Phoenix
4/20/2011 12:36:18 PM
Well your post reminds me of the saying 'never put all your eggs in one basket'. Mixing up your investments in different types of moderate risk investments has as you say brought you success all this time. So even with risk I feel it is a matter of the correct mix of investments. So different baskets with different risk levels for your eggs depending on the level of your risk tolerance, that is an investment portfolio with a good balance to meet your requirements might be the best way forward.
Re: Risk Tolerance when the Clock is Ticking
tokyogai
4/20/2011 10:47:03 AM
Agreed. Treasuries look like a fools game right now. So why are so many being bought? It can't all be China. I think a number of investors have believed the Fed and think inflation is gone for the forseeable future. I don't agree. The effect of all the money we printed and all the stimulus packages will show up in inflation over the next few years. I think we are already seeing signs of what will come.
Re: Risk Tolerance when the Clock is Ticking
tokyogai
4/20/2011 10:47:02 AM
Agreed. Treasuries look like a fools game right now. So why are so many being bought? It can't all be China. I think a number of investors have believed the Fed and think inflation is gone for the forseeable future. I don't agree. The effect of all the money we printed and all the stimulus packages will show up in inflation over the next few years. I think we are already seeing signs of what will come.
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