You cannot take out two discussions from the equity investment – Risk and Return. Every investment involves some risk, and we can mark them on a scale of 1 to 10. The investment with sovereign backing (government bonds) is on the lower end of the scale, while equity is towards the higher end.
Every investor needs to understand the risk – risk needs to be understood both in absolute and relative terms. Compared to crypto, equity investment is less risky but riskier than corporate bonds (relative risk). Absolute risk is the probability or chance of losing money when you invest in equity. As an investor, it is of utmost importance that you understand risks.
- Assume you want to create a portfolio of 10 stocks. How are you going to do it? What are the steps you will follow as an investor? The first thing you will figure out is the risk associated with direct equity.
- You will then evaluate how much risk you are ready to take, and once you are sure of it, you will start looking at stock categories for selection.
- Finally, you will pick stock from different categories to create a diversified portfolio.
If you think stock investing is only about the above steps, you are mistaken. Most investors presume picking stocks and staying invested in them will give them good returns over time. Unfortunately, that is not how the stock market works. Unless you have a risk management system, you cannot maximize your gains. A Risk Management System (RMS) increases your gains by minimizing your losses. Let us understand RMS?
What is Risk Management?
Risk Management is a process of identifying, assessing, and controlling threats to your portfolio and profits. The risks come from sources like financial uncertainties, macroeconomic factors, bad quarterly returns, losses, etc.
As mentioned above, equity investment comes with a risk. However, you cannot stay away from equity investment because of the risks. The solution is you create a risk management system.
A successful risk management system is one that considers the full range of risks. It also examines the relationship between the risks and the cascading impact they could have on your overall financial goal.
Why do you need an RMS?
Below are the reasons for having an RMS:
Portfolio size increases with time – You may start with 5 to 8 stocks in your portfolio. With time, the portfolio size will increase. It is practically impossible for you to manage your portfolio. You may create a manual RMS, but the system will not be effective. There are millions of data pointers to consider.
To lower your losses – Most times, your focus is on maximizing your returns. You forget about minimizing the losses. The primary focus should always be on returns. However, one of the essential goals is also to reduce losses.
How does RMS increase your returns?
Assume you have invested Rs 10,000 each in five different stocks – A, B, C, D, and E. Stock A is your star performer, and it has doubled in four years. Stock B, C, and D have given your 50% returns. You were unable to evaluate the risk of stock E, and after four years, the net loss is 80%. Your 50K is now Rs 67,000 (20K + 15K + 15K + 15K + 2K).
If you had the risk management system in place, you would have exited the stock E with a 20% loss (assumption). That amount you could have been invested in stock A (total 18K). With an efficient risk management system, you would have had Rs 81,000 (36K + 15K + 15K + 15K). The difference is huge.
You should note that no matter what system you have in place, you will pick companies like E. That is the risk we were talking about earlier. What can be avoided is what we discussed above.
Jarvis’s Risk Management System
We at Jarvis understand that retail investors cannot create risk management of their own. Hence we have created a proprietary risk management system that monitors your investment 24*7 and the entire investment life-cycle.
Imagine you are on a family vacation, and a company in which you have good exposure has major red alerts. You return after a week to find the stock price is down by 50%. The news will take away all the beautiful memories created on vacation. Do you want to be in such a situation? We are sure you don’t want to be in that situation.
With Jarvis’s Risk Management System, you get notified immediately when a stock is flagged. The detailed research, analysis, decision-making, and everything else is done by RMS. You need to spare a few seconds to exit the holding when notified. Once done, you can continue quality time with your family.
Investing should not give you stress. It should only bring joy – the joy of seeing your wealth grow.
With Jarvis’s RMS you get alerts for:
- Profit Booking – The system is so advanced that it can predict all minor and major market crashes. It will ask you to book a profit book before any major market crash.
- Partial Profit Booking – It will recommend you to partially book profits if a minor crash is predicted by the system.
- Stock Exit – If any stock is flagged red for any reason, you get notified immediately, so you can exit before it goes down.
- Auto-rebalancing – Your portfolio will be auto-rebalanced from time to time to stay in line with your risk profile and your investment goals.
Do you have doubts about our RMS system? Download our app and find out for yourself.