Stock Market Proverbs Part 1: Risk Management

I joined a securities company right after graduating from university.
This was because I was interested in researching the financial details of listed companies and how they are reflected in stock prices.

It was 45 years ago, but since it was my first experience in the professional world, I still remember quite a lot of what I learned back then.
In this series, I will talk about stock market proverbs, divided into three parts: risk management, trading timing, and fundamental principles.

These are all things that can be taken not just as stock market advice, but as life lessons as well.

First, as the first installment, here are proverbs related to risk management.

This means that when a stock price falls below your purchase price, it is important to cut your losses early to minimize them and prevent further expansion of losses.
While persistence is important, it is also crucial to know when to decisively quit and move on to the next thing.

This means that it is important to make decisions that may result in short-term losses but lead to long-term gains. It is quite difficult, though.

This means that when a stock price rises, if you get too greedy thinking it will go up even more, you might miss the chance to sell, so it is important to sell while you are in the green and lock in your profits. You shouldn't be too greedy about anything.

This has a similar meaning. When the market heats up, people often fall under the illusion that it will keep rising, and before they know it, it crashes and they miss the chance to sell.

This is also the same. It just goes to show how important it is; the smartest thing to do is to be satisfied with a moderate profit rather than being greedy. Since no one knows the future of the market, this also applies to gambling—you have to know when to stop while you're ahead.

Don't get too obsessed. Sometimes, stopping your trading and watching the market from the sidelines is the secret to seizing the next opportunity.

This means that out of ten times, it is okay to lose nine times if you have one big win. However, this doesn't mean you'll be fine just because you'll eventually have a big win after losing repeatedly; it means it is important to find the potential for a big win.

The eggs represent money, and the basket represents the investment target. In other words, diversifying your investments rather than concentrating on a single stock or sector is effective for reducing risk. Companies expanding their business models is also a form of this strategy.

Human indecision refers to the way investors' emotions constantly shift. Because the market carries volatility risk, calm judgment is essential.

This is a proverb about margin trading, which is used by advanced investors. It allows you to trade with many times the amount of cash you hold, and it warns that this is not to be trusted—in other words, the risk is extremely high. This also applies to things like FX trading.

Even if it is not just beginner's luck, there are times when the stocks you bought continue to rise in value. It is precisely at times like these that you must not neglect risk management and are required to remain calm. You must not get carried away.

There are times when trading volume in the stock market decreases and the market becomes quiet. Instead of panicking and selling out of fear that prices will drop, the priority is to assess the market situation. It is like a crisis response manual. First, you must judge the situation.

That is all for this time. Next time will be the trading timing edition.

Thank you for reading. I would appreciate it if you could like and follow. I look forward to your continued support.

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