Greetings, fellow Pro-fundity team members -
5-12-00 Page

This Week's Guidepost

"Market Risk"

1. I was asked by a participant in an investing class last week if the statistics were as bad as reported, that is, regarding winners and losers among investors and traders in the market. The follow-up question was very pointed, "What are we going to do differently to be among the few success stories?" As I considered the appropriate response to that question, I felt it was time deal with the same issue in our guideposts. The short answer to the question is we learn to manage risk. The long answer is just that, longer than we can handle in one guidepost. Let's begin this week with risk philosophy and what risk management means, then follow-up with guideposts dealing with techniques and examples.

2. The work “risk” comes from the early Italian risicare, which means “to dare.” The idea that we might “dare” to take action may be something we would “do on a dare.” That is, without rational thought, having a cavalier disregard for the consequences. Some would call it “guts!”

3. If that is our approach to risk in the market, we are all in deep trouble. The importance of the definition above is that risk, meaning “to dare,” is a choice we make. It is not something left to the roll of the dice, to luck, or to the whims of fate. We have a good discussion on Risk under the Tutorial link on the home page. It would be a good idea to review that section before going on with this Guidepost.

4. True progress in society began as soon as this understanding of risk was accepted. That is, when people realized they had some control over their destiny, they were no longer at the mercy of mediums and soothsayers for a peek into the future. Once risk could be managed, the very idea of effecting change brought an excitement and an energy that is still driving the economies of the world. It is our understanding of risk that allows us to make rational decisions about our future.

5. Because our understandings are always incomplete, there must ever be an element of risk in what we hope and plan for the future. Certainty is in the past, in what has happened. When we attach “certainty” to the future, we always end up with egg on our face. That possibility serves to dampen our enthusiasm for taking a chance. However, it is a tribute to human nature to feel compelled to take chances. It is this “irrational” nature that has led the industrial revolution, the space age, the computer, the web and cyber-revolutions and who knows what in the future.

6. The entrepreneurial spirit was born with the prospects of wealth that risk-management offered. Wealth has always been a powerful motivator and the extent of what we now see as global trade has been the outgrowth. Capitalism flourished in this environment with risk-taking providing its foundation. Few people gain wealth without taking a chance.

7. That brings us to the market place today, where we find a laboratory for exercising the principles of risk. What a great dynamic we can take part in. It is in the laboratory that systems of risk management have flourished and fallen. The good is always accompanied by the bad.

8. More to follow...

9. The value in the Rolling Analysis is the flavor, the color, the personality of how the stock has reacted in the past. Recently (12/28/99), eminent stock market chartist and guru Don Worden (founder of TC2000) made the following comment: “Every stock has a personality. You should study a stock's personality before you attempt to come to conclusions about its technical strength or weakness... “

10. To Worden’s observation we add a hearty hurrah! That is the purpose of the Rolling Analysis section. It is not to fix buy and sell triggers. It is to help us understand the personality of tickers we are considering to be rollers. This is but one unique and proprietary feature of Pro-fundity that sets it apart from other rolling stock web sites. Properly utilized, this will provide a market sense and understanding of the nature of what we call “rolling stocks,” increasing their successful use to fatten our wallets.

It is our intent to help our subscribers understand market strategies well enough to make informed decisions and understand the risks.

TC-2000 tutorials are available on the home page.