Risk comes from not knowing what you are doing.
Investing in the stock markets requires a study of stocks no doubt, but more importantly it requires an understanding of your own self – your expectations and objectives for investing in stock markets in the first place. Stock market investments are inherently risky and therefore the first thing to do is to understand your own attitude towards risk. Some questions that you need to ask yourself in this regard are:
- Your investment objectives – Capital preservation, Regular Income, Capital Appreciation, or a combination of these.
- The amount of time you are willing to stay invested in the markets and forget about the invested money
- Your inclination to learn more about the underlying business, the competition, the economic environment, etc.
- The frequency with which you tend to follow your stock investments – by the hour, daily, weekly, etc.
- Your mental make-up in the face of a steep market correction – ranging from sell and get out asap to buy more since stocks are much cheaper now
A professional investment adviser can understand your risk profile using a standard multi-choice questionnaire within minutes. This can range from conservative to balanced to very aggressive. At Attainix Consulting we use a five step risk profile classification and use that to advise Clients about the right stocks for their portfolio. This is not only in the best interest of the Client himself but it is also mandated by SEBI as the standard approach to be followed by all SEBI Registered Investment Advisers. This approach aligns the client’s expectations and investments objectives with his stock portfolio and thus minimizes the chances of future discontent.
Managing the risk of investing in stock markets has many elements, but the first step is to know your own attitude towards risk. As Warren Buffet likes to put it – Risk comes from NOT knowing what you are doing.
