Wednesday, 16 May 2018

Downside Risk

Downside risk

When you’re thinking of selling a share you should be aware of the downside risk. Best example I can think of is BT. Bought it around 92p in 2009. Got to nearly 500p in late 2015. Now it’s about 208p.

Or think how much BP dropped after the spill. Much higher now though.

It's good to be positive and optimistic but you should try and consider the downside risk in anything. What's the risk of not meeting new quality people? What's the risk of not maintaining relationships with good people?

It's a bit similar to 'opportunity cost'. What are the costs of keeping doing what you're doing and what could you gain or lose by doing something else?

If you have clear goals you'll know what you want so you will often go for it hard... but be aware of the risks too.

You can use it to your advantage in shares by shorting shares where people have not evaluated the downside risks enough. I still believe both Tesco and Morrisons are overpriced because some people don't really see the threat of Aldi and Lidl. They're not as big in London as they are 'up north' for example and I'm sure a lot of rich people have never shopped in Aldi... the threat is there though.

The downside risk is much more pronounced with spreadbetting because potentially you can lose a lot. If you think something is going to be flat or close to flat you shouldn’t do it.

On the flip side the upside risk is much higher. In the 1 minute it takes to place a trade you could make more than your day’s wages with a relatively small amount of money.

Time risk and do not be needy.

It’s very important not be needy… especially when you’re spending time in front of a computer.

Ideally how I feel is that I should get my results from what I’m doing then move onto something else. Don’t waste time just aimlessly browsing.

However you have to sometimes just be PATIENT with spreadbetting. It’s quite hard to know how much time to allocate it but if you’re doing it you should probably allocate a bit each weekday- it doesn’t have to be LOTS though.

You can save time to an extent doing this if you want by just having limit orders and letting the spreads hit them.

You should look at what is the return you are getting on your time and your money. Again trust your instincts.

I’m getting to the stage where I believe I KNOW something is good value and then I should certainly instinctively do it. I’m right at least 85% of the time. However if I look too much I may just do it when it is a quite good opportunity.

Anyway pleased overall with share performance... other areas in life room for improvement though. So less time on money and more time on other things..

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