How To Measure Risk.

[Deaddog]

Interesting...remember no analysis is complete unless you risk adjust the investment. Higher risk requires higher returns.

The question is; How do you measure Risk or better yet CAN you measure Risk?

Nothing is risk free. The gold you have buries in the back yard or the cash you have under the mattress are at risk of being discovered, or burned or washed away by a broken water main or anything else that you don’t expect.

So let’s not worry about black swan events. How do you measure and manage your portfolio risk?

To me risk is measured in dollars. How many dollars am I willing to risk on any investment? Nice and simple. I am risking up to 2% of my portfolio on any one stock. If any one stock falls in price so that it has a loss of more than 2% of the portfolio then I should get rid of that stock.

A lot of people use diversification to manage risk. But I see that as a two edged sword. Yes you protect yourself from any one stock putting you in the poor house but you also limit the amount of gain any one stock can add to the performance of your portfolio. 10 to 15 stocks is not unreasonable but once you get 25 or more you might as well own the market via an ETF. You not only limit your risk with diversification but you also limit your returns.

The question remains how to get the best returns with a minimum of risk.

[billyjoe]

Deaddog,
Everyone has a method of measuring risk. Take stock advice from the richest man in town, don't listen to tips from vagrants all the way up to paying financial wizards for their insights.

----------Vectorvest, for instance, has a 0-2 scale for stocks based on Relative safety and another called the Comfort Index, the ability of a stock to resist severe or lengthy price declines. Much of their methodology is proprietary but they say it is based "upon long term price analysis".

---------Too bad in the long run we find out the risk after we've made or lost our $$.

-------------billy

[Deaddog]

Billy and All:

I guess my question should have been; How do each of you measure and manage risk?

Do you use some Risk measurement Number? If so how do you use it?

How does one Risk Adjust an investment.

If you take more risk you should expect a higher return. Sure that makes sense but given two stocks how do you determin which is riskier?

Are Mr Market picks riskier than Blue chip dividend payers? Given his HUGEnesses win/loss record how risky are his picks?

[jiesen]

risky business

Billy and All:

I guess my question should have been; How do each of you measure and manage risk?

Do you use some Risk measurement Number? If so how do you use it?

How does one Risk Adjust an investment.

If you take more risk you should expect a higher return. Sure that makes sense but given two stocks how do you determin which is riskier?

Are Mr Market picks riskier than Blue chip dividend payers? Given his HUGEnesses win/loss record how risky are his picks?

That's not so tough to do, actually. Risk is related to the volatility of the investment... meaning the more volatile it is, the more risk it has. Several factors correlate with volatility, including the size, profitability, volume, type of investment (stock vs bond) etc. So if you want to compare two stocks, pick the characteristics that most contribute to the risk, and score each stock on those characteristics (weight the more important factors accordingly). Add up the score, and you have determined the risk of each one.

Reduce your risk by buying both of them, or increase it by putting all the money in one. Simple!

BTW, taking more risk does not mean you get higher returns... only a *potential* for higher returns. It also means a potential for higher losses.

[Websman]

Just don't trade like me...I take risk to the extreme. jejeje....

[Deaddog]

Just don't trade like me...I take risk to the extreme. jejeje....

Are you getting extreme returns for your risk or just an adrenalin rush?

[Deaddog]

Just don't trade like me...I take risk to the extreme. jejeje....

You seem to have a strategy to manage your Risk. Would you mind sharing?

Do you cut your losers quickly or do you hold until they die a natural death? An all or nothing approach.

Do you have a target in mind when you make your initial entry? Do you scale out of positions, use trailing stops, or sell all at the target price?

How do you manage Fear & Greed? It’s starting to go down I’d better take some profit vs I hate to sell now cause as soon as I do it’ll probably go back up.

I find the disclaimer very interesting.

I pick more loosers than winners, but the winners more than make up for the loosers...if that makes sense. I keep at least 15 positions at any given time. If one does crash, I'm not out much. I'm actually loaded up heavier in JBII than some of my other plays, because I have more confidence in it. If it goes back over the $5 range, I will be realizing $100K+ gains.

Disclaimer: Most people who follow my picks end up losing money, because they either get in too late, or they wait too late to take profits.

[Websman]

Are you getting extreme returns for your risk or just an adrenalin rush?

Both. jejeje....

[Websman]

You seem to have a strategy to manage your Risk. Would you mind sharing?

Do you cut your losers quickly or do you hold until they die a natural death? An all or nothing approach.

Do you have a target in mind when you make your initial entry? Do you scale out of positions, use trailing stops, or sell all at the target price?

How do you manage Fear & Greed? It’s starting to go down I’d better take some profit vs I hate to sell now cause as soon as I do it’ll probably go back up.

I find the disclaimer very interesting.

1. I do cut my losses, but it depends on various factors where I actually cut the loss.

2. I watch the stock for signs that the run is over...this is where experience plays a factor. Stop losses are useless when trading penny stocks. Sometimes I'll sell half the postition on the way up, while on others I'll sell it all at once.

3. Vulcans don't trade with emotions...fear is the enemy. Greed is good...very good.

4. You'll probably never hear this from anybody but me, but intuition is a very powerful tool....I am at one with the market...I can feel the market...I control the market. It might sound like something from left field, but it works well for me.

5. This only works for me and nobody else. Each trader has to figure out what works for them.

[Deaddog]

Both. jejeje....

I thought you said "Vulcans don't trade with emotions..."

[Websman]

I thought you said "Vulcans don't trade with emotions..."

Hey, we're not perfect!