Be aware of your 'Attitude to risk'

Saturday, 19th September 2009 18:29 - by Boredmum

I think it’s important to understand that we all have a different attitude to risk and that is important in the way we trade. My attitude can differ slightly stock-by-stock. It may be that you have taken a ‘punt’ on an all-or-nothing stock but, as long as you are happy with your level of investment, then that is fine. Alternatively, you could set a small profit target price; say 10%, for that type of stock. You may be happy just to go quickly in and out, and then leave it. You may be sitting on a profit that could be several hundred or several thousand pounds. People may state that it has much further to go and that it’s a ‘Mortgage-payer’. That is nice for them. If you are happy with your profit, then take it. Don’t be influenced by others as we all expect different things. Be happy with your decision and don’t over-stretch your attitude to risk. There was a certain stock that I had traded a few times. Unfortunately, I was holding this particular stock when I was in hospital having my baby. Good news was expected, but when the rns came, the news wasn’t as expected and there was a large fall on the sp. The stock in question was Maghreb Minerals (TIDM code: MMS). Now, I sat on that stock for a while, even averaging-down at one point. I knew it was - and still is - a stock that could go either way. I resigned myself to the fact that it was a stock I could ‘lose’ and made sure the rest of my portfolio would cushion it. Although I knew and accepted that I could possibly lose my investment here, when the share price went up and I had a small profit I decided to come out. My profit was only a few hundred pounds but I was over £1,000 up on the previous day on this holding. When it came down to it, I figured that I had resigned myself to the possibility of losing my initial investment. I could now take out that investment plus a small profit. That money could be better off in less risky shares than this one. Maghreb Minerals have a NAV of around 20p, but they are looking for a Joint Venture. They have some good people invested in them (Firebird). There were many positives, but also too much uncertainty for me. If it does go the other way and multi-bags, I will still be happy with my decision. It is important to do what feels right to us at the time and stay within our own confines of risk.