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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (1864)	10/27/1998 10:47:00 PM
From: MrGreenJeans	Read Replies (1) \| Respond to of 15132

I Invest, You Speculate, He Gambles... One usually keeps one's house with diversified investing. There are many shades of grey here. I generally agree with the aforementioned point. In a market crash does diversification help?...When equity markets crash for example holding domestic and international stocks do little good since in the short-term they move in tandem (Morgan Stanley) even though most would probably erroneously agree with the statement that their risk is less with a position such as this. Not necessarily. With options positions can be so complex that even professional option traders do not appreciate or are slow to react to or cannot react due to illiquid markets and face risks far greater than they calculate. In fast moving markets how many people can adjust their positions? How many people incorrectly hedge? What is the difference between hedging and speculating since both the hedger and speculator have views on price movements? People calculate risks based on past history when future risk may have no relation at all to what has happened in the past. The paradigm may change. Point being that strict money management rules-for example when Bob tells one to invest no more than 4% in one security-are the essence of solid investing, speculating or trading. A point most ignore. A point most cannot afford to ignore. Why? Because three standard deviation moves happen more often than the probability table, which gives it 0% probability of occurring, suggests. In other words respect and manage risk or perish.