-
Research
-
Latest Research
- Tom Lee, CFA AC
-
First Word
FSI Pro FSI Macro
-
Intraday Word
FSI Pro FSI Macro
-
Macro Minute Video
FSI Pro FSI Macro
- Mark L. Newton, CMT AC
-
Daily Technical Strategy
FSI Pro FSI Macro
-
Live Technical Stock Analysis
FSI Pro FSI Macro
- L . Thomas Block
-
US Policy
FSI Pro FSI Macro
- Market Intelligence
-
Your Weekly Roadmap
FSI Pro FSI Macro FSI Weekly
-
First to Market
FSI Pro FSI Macro
-
Signal From Noise
-
Earnings Daily
FSI Pro FSI Macro FSI Weekly
-
Fed Watch
FSI Pro FSI Macro
- Crypto Research
-
Strategy
FSI Pro FSI Crypto
-
Market Update
FSI Pro FSI Crypto
-
Funding Fridays
FSI Pro FSI Crypto
-
Concepts
FSI Pro FSI Crypto
-
Comments
FSI Pro FSI Crypto
-
Liquid Ventures
FSI Pro FSI Crypto
-
Deep Research
FSI Pro FSI Crypto
-
Miscellaneous
FSI Pro FSI Crypto
-
DeFi Digest
FSI Pro FSI Crypto
-
Technical Analysis
FSI Pro FSI Crypto
-
Latest Research
-
Media
-
Latest Media
FSI Pro FSI Macro FSI Crypto
- Video Reports
-
Macro Minute Video
FSI Pro FSI Macro FSI Crypto
-
Daily Technical Strategy
FSI Pro FSI Macro FSI Crypto
-
Crypto Video
FSI Pro FSI Crypto
- Webinars
-
Latest Webinars
FSI Pro FSI Macro FSI Crypto
-
Market Outlook
FSI Pro FSI Macro FSI Crypto
-
Granny Shots
FSI Pro FSI Macro FSI Crypto
-
Technical Strategy
FSI Pro FSI Macro FSI Crypto
-
Crypto
FSI Pro FSI Macro FSI Crypto
-
Special Guest
FSI Pro FSI Macro FSI Crypto
- Media Appearances
-
Latest Appearances
-
Tom Lee, CFA AC
-
Mark L. Newton, CMT AC
-
Sean Farrell AC
-
L . Thomas Block
-
Latest Media
-
⚡FlashInsights
-
Stock Lists
-
All Stock Lists
- Granny Shots
-
Stock List
FSI Pro FSI Macro
-
Performance
FSI Pro FSI Macro
-
Commentary
FSI Pro FSI Macro
-
Historical
FSI Pro FSI Macro
- Upticks
-
Intro
FSI Pro FSI Macro
-
Stock List
FSI Pro FSI Macro
-
Performance
FSI Pro FSI Macro
-
Commentary
FSI Pro FSI Macro
-
FAQ
FSI Pro FSI Macro
- Sector Allocation
-
Intro
FSI Pro FSI Macro
-
Current Outlook
FSI Pro FSI Macro
-
Prior Outlooks
FSI Pro FSI Macro
-
Performance
FSI Pro FSI Macro
-
Sector
FSI Pro FSI Macro
-
Tools
FSI Pro FSI Macro
-
FAQ
FSI Pro FSI Macro
- Crypto Core Strategy
-
Intro
FSI Pro FSI Crypto
-
Strategy
FSI Pro FSI Crypto
-
Performance
FSI Pro FSI Crypto
-
Reports
FSI Pro FSI Crypto
-
Historical Changes
FSI Pro FSI Crypto
-
Tools
FSI Pro FSI Crypto
- Crypto Liquid Ventures
-
Intro
FSI Pro FSI Crypto
-
Strategy
FSI Pro FSI Crypto
-
Performance
FSI Pro FSI Crypto
-
Reports
FSI Pro FSI Crypto
-
All Stock Lists
-
Watchlist
-
Sector & Stock Screener
-
FSI Community
-
FSI Snapshot
-
FSI Academy
-
Book Recommedations
- Community Activities
-
Intro
-
Community Questions
-
Community Contests
-
FSI Snapshot
-
All Authors
Part 2
Recognizing Risk Starts With Knowing Yourself & Your Goals
To perform well, we must understand risk, then recognize when it’s high, then control it. This is easier said than done but knowing yourself is a good place to start. Much of an investor’s risk tolerance has to do with soft skills, upbringing, background, life experiences, and objectives. Time horizon and risk profile are floated around investing circles as cliches, and there’s good reason for it. They matter.
For an individual investor, knowing your risk tolerance and investing goal is crucially important, says Adam Gould, our Head of Quantitative Strategy. “You must think about what your goal is: Do you want to outperform? Are you good with the overall market return?” Gould says, adding that most of us are risk averse. In general, we’d prefer taking on less risk. So, when considering an investment, Gould says that the decision process lies in the risk entailed as well as the return. Return tells just half the story. Risk assessment is required.
In other words, the returns mean only so much by themselves. The risk taken must be assessed as well. Was the return achieved taking on a lot of risky, or with a safer strategy? Timing also matters: Time risk is generally defined as when an investment might work as you expect, but not when you expect.
There are many risks, almost always. Whether in plain sight or lurking, they are there: Freakish, once-in-a-lifetime events. Pandemics. Federal Reserve blunders. These risks are a common example of the importance of diversification, which is different for everybody. But in general, diversifying across stocks and sectors can minimize risk without sacrificing too much return.
“If you structure a portfolio properly, and it’s properly diversified, you can expect more return for the same level of risk,” Gould says. “Again, you must know your risk tolerance. If you concentrate your wealth in one stock, if stock goes up, it works for you. But that’s where diversification comes in. If the stock goes down, you want to be diversified.”
Overall, humans are naturally wired to be terrible investors. There’s a reason most of the pack buys high and sells low when the reverse strategy works much more effectively. In surging bull markets such as that of 2019-21, many investors might have felt the riskier the investment, the better the return. But riskier investments don’t necessarily mean greater return. If riskier investments reliably produced higher returns, Howard Marks once noted, they wouldn’t be riskier.
“It’s an oversimplifying – but not a grievous one – to say the inevitable hallmark of bubbles is a dearth of risk aversion,” Marks once wrote. “In crashes, on the other hand, investors fear too much. Excessive risk aversion keeps them from buying even when no optimism – only pessimism – is embodied in prices and valuations are absurdly low… When investors in general are too risk-tolerant, security prices can embody more risk than they do return. When investors are too risk-averse, prices can offer more return than risk.”
Of course, you could remove nearly all risk. But you’d probably be avoiding returns as well. After all, risk makes the whole game interesting and rewarding.
Said Will Rogers: “You’ve got to go out on a limb because that’s where the fruit is.”
Related Guides
-
Series of 3~9 minutesLast updated3 months ago
Technically Speaking – The FS Insight Primer on Technical Analysis
Three-part series on technical analysis
-
Series of 4~10 minutesLast updated1 year ago
Commodities 100
An introduction to commodities for novice investors.
-
Series of 7~24 minutesLast updated2 years ago
Tom Lee's Seven Principles of Evidence-Based Research
It is important to be evidence-driven when making decisions in equity markets. People have acclaimed some of our team’s market calls, but if you look closely much of the time, we were just following the data.
-
Series of 3~15 minutesLast updated1 year ago
Investor Psychology 100
You may have heard this before: Many of the world’s top investors manage their portfolios well because they manage their emotions well. But what does that look like? If you want to know more about investor psychology – arguably the most critical component of the entire game -- you’ve come to the right place. Let’s dive in.
-
Series of 8~22 minutesLast updated2 years ago
Financial Instruments! How to use them and what are they for!
In this guide, we will talk about financial instruments. We will cover stocks, bonds, various kinds of derivatives, and more!