Intelligent
Investment Pieces
Learn about key pieces of the investment puzzle and simplify the unnecessarily complex world of investing.
Investment Risk - 4 of 6
Lessons from Legendary Investors
The following quotes from legendary investors sum up the aptitude an individual must possess, or develop by using this website, in order to calmly cope with the significant investment risks described below.
"Investing is the intersection of economics and psychology." – Seth Karlman
"The investor’s chief problem and even his worst enemy is likely to be himself." – Benjamin Graham
"Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." – Warren Buffett
"Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett
"October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February." - Mark Twain
The Stock Market is designed to transfer money from the Active to the Patient – Warren Buffett
Acknowledging and accepting carefully considered risk will permit you to benefit from the higher returns equities provide inside a long-term investing portfolio.
Risk and Volatility
The words risk and volatility can be applied in the context of a single stock or the entire market.
Risk and volatility are sometimes used interchangeably. They should not be.
Volatility in investment terminology means a significant increase or decrease in the price of a stock or perhaps a long-term bonds within a short period of time.
If you have to sell during a period of downward volatility, that is bad! However, a sharp downward movement in a good stock, or the entire stock market, is a good thing for long-term investors. When the stock price or market drops, good stocks effectively go on sale, not unlike when the great pair of shoes you have been stalking goes on sale.
Now risk is a whole different kettle of fish! Risk in investment terminology means the permanent impairment or price drop of a stock or long-term bond, signifying that the prospects of a full recovery are remote.
Think of the way Google impacted phone book use, how Netflix killed Blockbuster Video and, more recently, the impact of Uber on the taxi industry. If you happened to own a phone book business, video store, or taxi, you may never be able to recoup your investment. That is risk.
"Volatility in the up direction is not a problem-it's only downward volatility that offers discourse." ― Coreen T. Sol
"Stock market meltdowns are like natural disasters, unpredictable and unavoidable." ― John Heinzl, Globe & Mail
"Volatility is the price you pay for performance." ― Samantha McLemore, Legg Mason