Everyone approaches money management differently…[but it is most important] to have a process that can mitigate the risk of loss in your portfolio. [That doesn’t] mean you will never lose money…[but] the goal is not to lose so much money you can’t recover from it.
It is not surprising with markets surging off the March lows, the Fed flooding the system with liquidity, and the mainstream media trumpeting the news, that individuals have become swept up in the moment…into a false sense of security with respect to the risk being undertaken…[At RIA] we try and mitigate those flaws through the fundamental, economic and price analysis which forms the foundation of overall risk exposure and asset allocation [and to that end we present below]…
the 15-investing rules to win the long-game.
- Cut losers short and let winner’s run. (Be a scale-up buyer.)
- Set goals and be actionable. (Without specific goals, trades become arbitrary.)
- Emotionally driven decisions void the investment process. (Buy high/sell low)
- Follow the trend. (80% of portfolio performance is determined by the long-term, monthly, trend. While a “rising tide lifts all boats,” the opposite is also true.)
- Never let a “trading opportunity” turn into a long-term investment. (Refer to rule #1. All initial purchases are “trades,” until your investment thesis is proved correct.)
- An investment discipline does not work if it is not followed.
- “Losing money” is part of the investment process. (If you are not prepared to take losses when they occur, you should not be investing.)
- The odds of success improve greatly when the fundamental analysis is confirmed by the technical price action. (This applies to both bull and bear markets)
- Never, under any circumstances, add to a losing position. (“Only losers add to losers.” – Paul Tudor Jones)
- Markets are either “bullish” or “bearish.” During a “bull market” be only long or neutral. During a “bear market”be only neutral or short. (Bull and Bear markets are determined by their long-term trend.)
- When markets are trading at, or near, extremes do the opposite of the “herd.”
- Do more of what works and less of what doesn’t. (Traditional rebalancing takes money from winners and adds it to losers. Rebalance by reducing losers and adding to winners.)
- “Buy” and “Sell” signals are only useful if they are implemented. (Managing without a “buy/sell” discipline is designed to fail.)
- Strive to be a .700 “at bat” player. (No strategy works 100% of the time. Be consistent, control errors, and capitalize on opportunity to win.)
- Manage risk and volatility. (Control the variables that lead to mistakes to generate returns as a byproduct.)
…The current market advance against a backdrop of deteriorating economics and fundamentals is certainly worth worrying about – how long it can last is anyone’s guess…[but] all good things do come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives, however, and that is why focusing on “risk controls” in the short-term [as presented in this article], and avoiding subsequent major draw-downs, will allow the long-term returns to take care of themselves.
Editor’s Note: The original article by Lance Roberts has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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