Named as one of the "15 most important economic journalists" in the United States, Barry Ritholz blogs for The Washington Post and the Big Picture, contributes to Barron's and Bloomberg and is credited with predicting the most recent market collapse and recession. With such sterling distinctions backing up his recommendations, it's no wonder readers continually ask him for ways to improve their portfolio management skills.
On October 6, 2012, Ritholz published his first four rules for investing. To better limit losses and increase your profits, you may want to consider the following tips:
1. Let your winners run and cut your losers short – Ritholz says that by being "humble and intelligent," you can rotate away from sectors and stocks that are providing less than desirable results. Similarly, he advocates letting top-performing stocks run so that you can concentrate on adaptive exit strategies, not quick gains, thus instilling in yourself long-term habits that produce results.
2. Avoid predictions and forecasts – "When investors make forecasts they focus more on being right than making money," Ritholz says. At SmartStops, our portfolio protection services don't rely on predictions. By analyzing historical market factors as well as recent data, our alerts look to inform your investment choices with reliable, timely metrics.
3. Understand crowd behavior – According to Ritholz, "investing isn't necessarily a process of picking the "best" asset class, sector or stock, but rather, selecting what the crowd is buying." Because of this truism, he says that by understanding the psychology of crowd behavior – such as how higher prices attract more buyers and vice versa – investors can respond to changes knowledgeably and in a way that allows their portfolio to reach its goals.
4. Think like a contrarian – While Ritholz says that you should understand crowd behavior, he doesn't recommend following it, as he says investors can be "fickle," "overly emotional" and "irrational."
To guard against these tendencies, consider making your decisions with the help of SmartStops. Want to learn more about how our risk indicators can help you? Click here for more information.
Categories: Risk Management, Trading & Portfolio Strategies