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https://youtu.be/MHQf5vqe_0A?si=fHMKZIah_8gqndGZ
How To Minimize Your Losses In The
Stock Market
What Is Risk?
https://youtu.be/MHQf5vqe_0A?si=fHMKZIah_8gqndGZ
The trouble with a lot of investors is that that are lured to an investment
overwhelmingly by the potential gain. Of course, this is a natural reaction
and on the face of it just fine. Who doesn’t want to make a quick buck? The
challenge arises from the conflicting priorities of pursuing profit and the
necessity to assess risk beforehand. Investors essentially are blinded by the
potential riches and forget that starting with the risk in the investment is
paramount to the potential return. As an investor, it’s always prudent to
start with risk.

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Establish what you can lose and measure the return secondary. It’s
important to recognize why this is usually not the case for most people.
 The Potential for Higher Returns: Frequently, investors
are prepared to accept greater risk in pursuit of higher returns.
The stock market has historically outperformed other asset
classes over the long term, but it is also more volatile. Long-
term returns may be higher for investors willing to assume
increased risk.
 Behavioural Biases: could be one of the strongest reasons
for forgetting to evaluate the risk. Investors often overestimate
their predictive abilities, leading them to make risky
investments without a full understanding of the associated
risks. Confirmation bias (selectively interpreting information
that aligns with their existing beliefs,) social influence and fear
of missing out (FOMO) are some of the more common ones
that place highly in the brain.
 Lack of Knowledge and Experience: Some investors may
lack the knowledge and experience necessary to comprehend
the risks associated with investments. This may cause them to
make risky investments without a complete understanding of
the hazards involved.
 Focus On the Short Term: Certain investors may prioritize
short-term gains over long-term objectives, compelling them to
engage in riskier investment decisions in pursuit of immediate
profits.
There are macro and micro risks in every investment. There are just too
many moving parts on a high level. The complexity of the economy,

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government actions, global factors and information limitations are all very
good reasons to stary away from macro forecasting.
While investors can make informed assessments of macroeconomic trends,
predicting precise economic changes is a daunting task. Rather than
endeavouring to predict short-term economic shifts, it is often more
prudent for investors to concentrate on their own financial objectives, risk
tolerance, and long-term strategies. You can get to those by evaluating the
specifics risks.
Market Risk
Systemic risk, often known as undiversifiable risk, is another name for
market risk. It's the kind of risk that can't be mitigated by spreading your
holdings across several markets. All securities and asset types are
vulnerable to systematic risk since the market is at risk.
You are an investor with a diverse portfolio of equities, bonds, and other
assets. You've carried out your research and diversified your investments to
manage risk intelligently. However, bang! An economic catastrophe occurs,
such as a flash crash or a financial crisis that you just didn’t see coming.
This is when the excitement and also fear starts. We refer to this as
systematic market risk. Suddenly, it resembles a stock market transaction.
Almost everything in your portfolio begins to lose value, regardless of how
meticulously you assembled it. The value of stocks plummets, the
desirability of bonds diminishes, and there are losses all around. Moreover,

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guess what? This party isn't just for you; it's an all-inclusive event that
affects every investor and their assets. You cannot avoid it despite your
efforts.
Simply put, systematic risk is a type of risk that focuses on the broad
picture. It's things like economic ups and downs, interest rate fluctuations,
political insanity, and other large-scale occurrences that disrupt the entire
market. So, what is the conclusion? Diversify your investments not only
within various types of assets, but also across different types of assets to
reduce the impact of events such as these.
In summary, company-specific risk is a form of risk that is unique to a
particular company and unrelated to market conditions. It can be caused by
a variety of variables, such as managerial decisions, operational issues, legal
matters, and financial health. Make no mistake, company specific risk is the
most important to consider. This is the risk that the company itself will
underperform or fail, regardless of what happens to the overall market.
Company-specific risk, often known as "idiosyncratic risk," is a type of risk
that is specific to a given business and not influenced by macroeconomic or
industry trends. A firm's financial results, share price, and overall value
might be significantly impacted by events, circumstances, or variables that
are exclusive to that company. These factors can include management
decisions, corporate governance issues, operational problems, product
recalls, lawsuits, and other events or conditions that are specific to that
company.

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Causes Of Company-Specific Risk
 Poor strategic decisions or mismanagement on the part of the
company's leadership might put the business in jeopardy. The
company's finances could be damaged, for instance, by a poorly
implemented expansion strategy or a dubious acquisition.
 Production delays, supply chain disruptions, and quality
control problems are all examples of operational challenges
that can lead to company-specific risk.
 Concerns with the law and governing bodies lawsuits,
regulatory investigations, and noncompliance all pose unique
dangers to businesses because of the costs and reputational
harm that can follow from them.
 The financial health and creditworthiness of a business can be a
source of risk unique to that business. Companies with high
levels of debt or cash flow issues may be more susceptible to
financial difficulties.
Impact Of Company-Specific Risk
 Risk unique to a company may cause big swings in the price of
its shares. Volatility is something to be aware of and can often
shake you out of a position. Positive developments can lead to
price gains, whilst negative news or occurrences might cause a
stock's value to drop sharply.
 Company-specific risk may have a direct effect on a company's
financial success. For instance, a product recall might affect
profitability by lowering sales and raising costs.

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 Bondholders and creditors may view company-specific risk as
posing a threat to the company's capacity to pay back its debts.
Credit ratings could be downgraded, or interest rates could go
up as a result. This is a credit risk and something to consider.
Mitigation
As company specific risk is the most important thing to consider, I suggest
spending 80% of your time analyzing it. There are practical ways you can
reduce this risk although some things you can never predict.
There are two camps of portfolio managers. The very focused portfolio
manager or the diversified one. You can mitigate company-specific risk by
diversifying your portfolio by holding a mix of different stocks and assets
and reduce your exposure to the performance of any single company.
Sometimes this is not as easy as it may sound. I’ve seen many concentrated
portfolios all ‘tech’ or all the majority ‘energy’ related for example. If one
company warns about something, you could find your whole portfolio
taking a hit. This also borders on sector risk too. Just don’t put all your eggs
in one basket.
Liquidity & Currency Risk
There are a few other risks you should consider. One is liquidity risk.
Unpredictable transaction executions and price volatility can be the result
of the fast and dramatic price swings produced by a rise in retail investor
interest. It also sparked debates about market oversight and the impact of
small investors.
Finally, risk of financial loss or price volatility due to changes in the value of
one currency relative to another is known as currency risk, exchange rate
risk, or foreign exchange risk. Those who frequently deal in foreign
exchange or other financial operations involving various currencies are

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particularly vulnerable. The following are crucial to understand currency
risk and how it might affect various parts of financial activities. It’s
important to check your chosen targets exposure to international
operations.
Successful investors always put risk analysis ahead of profit and loss
calculations. This strategy stresses the value of taking calculated risks and
protecting your initial investment. You may better align your investments
with your risk tolerance and make more logical decisions if you do some
preliminary risk assessment to determine the possibility and potential
impact of bad events.
Putting risk assessment first suggests distributing investing capital across a
variety of asset classes and industries to lessen the blow of any single
underperformer. The extended view it encourages can assist you avoid
making hasty decisions out of greed or fear. Instead, you should aim for a
rate of return that is proportional to the amount of risk you are taking to
achieve your financial goals and return.
Investing in ways that are consistent with your risk tolerance and financial
goals is a crucial part of effective risk management. Achieving long-term
success and I want to emphasize the long term requires putting risk
considerations ahead of profit and loss projections. Think carefully about
this before you execute your next investment. You’ll be part of the 20% that
do.