Managing the risk is what stock investing is all about. Investors aim to minimize the risk by doing through research, developing strategies, and proper prudence. Across the business world you will find many examples of good and bad risk management. Many lessons can be learned (both good and bad) that can be applied to stock investment, and help avoid the various pitfalls that can be encountered.
Lessons in risk management from the corporate world can apply in the investment world.
Vigilance Is The Key – Target Stores
Looking first at “What Does The Ousting of Target’s CEO Teach Us About Risk Management?” many lessons can be learnt. There was a major data breach at Target, and this breach threatened much of the private information they held on their customers. The fact that Target ousted the CEO shows that if it can happen to one of the largest businesses in the country, it can happen to you too.
Vigilance is absolutely vital in risk management. The complacency of the CEO is why he was fired, despite whatever the official reason might have been.
If It Sounds Too Good To Be True It Probably Is – Financial Crisis In 2008
The financial collapse of 2008 caused the greatest economic disaster since the Great Depression Many lessons that investors can learn come from the mistakes made by investors at this time. Investors must be aware that if it sounds too good to be true, it almost certainly is.
In 2008, this rule was ignored. Investors 401(k)s, and portfolios were expanded massively due to a housing boom that turned out to be artificial. Many victims of the mass foreclosures that were to come ignored this rule. They got mortgages that they couldn’t really afford. Bankers who operated close to illegality conned many of them into it. They bought these bad mortgages, and then sold them as packages to investors.
You Should Always Hedge Your Bets – Bernie Madoff’s Fraud
Bernie Madoff is now serving a long jail sentence, after he ran the greatest Ponzi scheme of all time. Which collapsed around him. An unbelievable number of investors lost everything after they placed their trust with this trustworthy man (who turned out to be less than trustworthy). One of the most common is to trust a known entity, whether it is an investor like Madoff, or a stock, or anything else. Never have all your eggs in one basket.
They key to being successful in the stock market is diversification. If you hedge your bets then you know that fortunes aren’t down to one thing. If something goes wrong, and you have diversified then you are in a much better position to continue to be successful.
Never fall for something that promises too much, stay vigilant and hedge your bets.
Producing the best risk management strategy is important, but many people don’t notice it until it goes wrong. The risk management themes run through both the stock investment world, and the business world. This is because both of them involve making the calculated risk, in the aim of achieving growth. You should watch the business world to see what goes right, but also to see what goes wrong. You should then try not to make the same mistakes.