Investing is often seen as being all about return. However, all returns are not the same! All too often, investors make the big mistake – the rookie error of selecting their investment strategy or approach based solely on return.
How can looking at the return be a mistake?
Looking at the return is not the mistake, ONLY looking at return is the mistake.
For example, rather than just the percentage return, how volatile a return was it. You see, a strategy may have the capacity to generate a 30 or even 40% return for a month, but in achieving that, may have a very high volatility of return. You may make 30% but you could lose everything. This type of strategy would be typically speculative and one to avoid, unless you enjoy higher risks.
Also important is the probability of return. In other words, how often are you right, versus how often are you wrong. While past performance is no guarantee of future performance, it can help in stress testing your strategy to see exactly how it works under a range of market conditions. Looking at the stats we have, they are very pleasing, in terms of being right, a lot!
Who wins the race?
Think back to the kids story, the Tortoise and the Hare. Slow and steady wins the race and for an investor looking for regular, frequent wins as well as additional cashflow, then our Cashflow On Demand strategy really stacks up.
Where most traditional investors go wrong
Traditional buy and hold investing, while a mainstream approach, has significant faults, especially in today’s market. You see, a traditional investor can only really make money when markets go up, giving them a capital gain or profit.
However, and especially in today’s market, we all know that shares don’t just go up! In fact, they can move sideways and also down, with equal frequency. As such, using a strategy that provides income and profit potential from a rising, sideways or even marginally downwards markets would make a lot of sense.
How about the risks?
Well again, most traditional buy and hold investors, well, they do exactly that. They buy and they hold – afterall, hold for long enough and jut maybe you can ride out some of the volatility in the market.
However, blindly holding also comes with its own risks because sometimes they simply don’t come back! Think MIM, Pasminco, Babcock and Brown, ABC Learning and plenty more!
Having a stop/loss in place is critical
Over the years, not simply the 22 as a professional trader, but also running broking and Hedge Fund businesses, the one thing that stands out more than any other factor when comparing those successful versus those that aren’t, is how they manage risk.
Keep your risks under control, and while on the subject, that means keeping your emotions under control too! Afterall, if you have an emotional attachment to money, then you will be slow to make the right decisions, when it comes to getting out.
How can you broaden your opportunity for profit and manage risk at the same time?
Very simple. Develop a rock solid trading plan and then stick to it. If that sounds a bit too hard, then let us help you by giving you access to our trading and risk management plans. These we have developed over the years and they work. What’s more they don’t require any significant time investment on your part either.