Investment risk management involves diversifying investments across different market sectors to reduce risk, avoiding overpaying for overpriced stocks, and having clear investment goals aligned with either long-term or short-term strategies. Key aspects of risk management include conducting fundamental analysis of stocks to evaluate pricing and financial ratios, diversifying across different industries that may be impacted differently by economic conditions, and maintaining a long-term perspective when investing rather than being swayed by short-term market volatility. The document provides tips on how to approach investment risk management through diversification, fundamental analysis, aligning with investment time horizons, and avoiding making decisions based on shifting economic sentiment.
2. Investment risk management includes
diversifying to balance business risk, being
wary of overpriced stocks, and not confusing
short term goals with long term investing
techniques.
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3. Picking new winners is always the name of
the game but picking them at the best price,
diversifying to reduce sector risk, and
choosing stocks whose prospects match
your long term goals are good ways of
Investment Risk Management.
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4. Business risk is the risk of competition.
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5. Effectiveness of management, developing
and promoting products, penetrating
markets, and doing so in the most cost
effective and profitable manner all go into a
profitable company.
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6. Business risk is also economic risk.
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7. Macroeconomic circumstances such as
recessions and wars can devastate
otherwise thriving businesses.
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8. New scientific discoveries or new
technologies can likewise create new
winners and losers.
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9. Diversification helps in Investment risk
management.
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10. Consumer product companies typically do
better during a recession than oil
companies.
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11. Owning different types of stock in several
market sectors will protect you from an
isolated market downturn in one sector.
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12. Fundamental analysis of stocks includes a
careful look at price to earnings ratios and
cash flow ratios.
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13. These details will tell you if a stock is
overpriced or underpriced.
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14. They will tell you how effectively the
company is using its cash flow.
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15. Fundamental analysis of a stock will tell you
if it is a good buy or if its success has
caused it to become overpriced.
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16. Many companies have their day of rapid
expansion and eventually grow to a size that
inhibits spectacular growth.
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17. They are typically priced in anticipation of
future earnings.
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18. Investment risk management in buying
stocks has to do with not overpaying for
popular stocks on the one hand and finding
underpriced stocks on the other.
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19. Investment risk management probably best
starts with having a clear idea of what your
investment goals are, and developing an
investment plan consistent with your goals.
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20. There are many stocks that have
appreciated in value over many years.
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21. Long term investing is best served by finding
underpriced stocks with good prospects,
buying and holding.
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22. However, almost all stocks suffer when there
is a market crash.
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23. If your goal is to make a certain amount of
money in a few years you may be
disappointed when the economy turns sour
just when you want to sell and take profits.
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24. Investment risk management for short term
goals is easier with trading options where
there is profit in both the rise and fall of
stock prices.
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25. Knowing what penny stocks to watch for
short term gains may be a better idea in a
volatile market where you want to keep your
gains as cash.
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26. Investment risk management works best
when you don’t let everyone else’s mood
affect yours.
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27. Polls tell us that the American public is very
pessimistic about the economy despite the
fact that the economy is improving, retails
sales are coming back, and manufacturing is
picking up.
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28. Whether you are investing in oil, investing in
gold, or investing in beer companies keep
your eye on financials and fundamentals as
your guide to Investment risk management.
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