Alpha Power Investing NewsletterJuly 2, 2018
The Critical Importance of Strategy and Risk Control
There are many factors that can lead to investment success, or a lack thereof. Our experience suggests that perhaps the two key factors to investment success are a disciplined approach to investing and strong risk control.
A "disciplined approach" can best be thought of as a "strategy" or combination of strategies. While an investor does not necessarily have to adhere to a 100% mechanical system, the key point is that the more objective the decision-making process - and the less it is vulnerable to subjective decision-making based on fear and/or greed - the greater the likelihood of long-term success.
"Risk control" involves any step or combination of steps that an investor takes to minimize the size, length and impact of any single losing trade and/or series of trades. Which raises a key point. Investors by and large are loath to discuss losing trades, even though we all experience them. This is especially true of the really bad investments that one looks back on in retrospect and says, "What the heck was I thinking?" This is due in part to simple human nature and the need for affirmation.
It is also due to the fact that most of us have heard tell of enough supposedly "wildly successful" investors over the years that at least some part of us subliminally believes that there are investors out there who are so super successful that they almost never experience losing trades and are rarely even wrong about the markets. And who knows, maybe there are. But you can rest assured, even if there are such people, they are few and far between. The rest of us are left to deal with the reality of the markets.
Reality Isn't Always Pretty
The Two Dangers with Losing Trades
The Bottom Line
The key then is to adopt a strategy in which you have confidence, which has risk controls built in to help mitigate the inevitable bumps in the road, and to do the occasionally hard emotional work of maintaining the discipline to follow your strategy.
To learn more about how Alpha's strategies control risk, please go to Strategies and Performance section of our website at www.alphaim.net to read the brochures and fact sheets.
To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at www.alphaim.net to read the brochures and fact sheets.
Alpha Investment Management, Inc. is a SEC registered investment advisor. Such registration does not imply a certain skill or training and no inference to the contrary should be made. The information and opinions expressed in this document are for informational purposes only. Any recommendation or opinion made in this document may not be suitable for all investors. The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
© 2018 Alpha Investment Management, Inc.