Investment Risk and the Market Cycle - as Valuations Rise, so too Does Risk
Managing risk is about one thing: dealing with the future. No one can predict the future with certainty.
Toronto/ON Canada, September 8, 2014 (Newswire.com) - Sadly, too many investors believe the opposite: at the nadir of a market cycle they think that risk is extremely high. They want to wait “until things look more certain” before investing. Of course, by the time that happens, stock prices have risen significantly. Today, as equity markets reach new highs, they continue to buy believing that the good times will continue.
Managing risk is about one thing: dealing with the future. No one can predict the future with certainty. Therefore, risk is inescapable. However, risk can be reduced by following a value investing strategy:
Investment risk arises primarily when investors become excessively optimistic and pay too-high prices for investments.
Michael Sprung, President
- Appraise the intrinsic value of each company over a business cycle;
- Seek long-term growth of capital by investing in companies that we perceive to be mispriced;
- Utilize a margin of safety to promote return of capital…not just return on capital.
Why does the value investing approach work? Investment risk arises primarily when investors become excessively optimistic and pay too-high prices for investments. The best way to reduce risk is to buy high-quality assets at reasonable prices.
After five years of rising prices, equity valuations are looking somewhat stretched. There is no benefit in attempting to predict short-term market movements. However, it may be prudent to take some profits in securities that have substantial capital gains. When markets are going up it takes discipline to increase cash positions. Cash can provide a good option to purchase good investments on any market setback.
As an investor, you must be vigilant in reviewing the investments you hold. Given your individual time-frame, you may find it prudent to make some adjustments in your portfolio. - See more at: http://www.sprunginvestment.com/investment-risk-market-cycle-valuations-rise-risk/#sthash.6Hja4deN.dpuf