Growing Rich - Arabictrader.com

Rule 6
AVOID UNNECESSARY RISK
This may sound ironic and seemingly goes against the conventional
thinking on Wall Street, but reducing your investment risk can actually
help to increase your overall performance results. Sure, it’s
sometimes thrilling to buy a “high-flyer” of the moment, with dreams
of seeing it double or triple in a matter of months. Unfortunately,
more times than not, bets like this backfire. Highly volatile stocks
often fall faster much more than they rise, especially if every broker
in town is hyping them. And big losers can take a long time to come
back.
A COOL TRIO TURNS COLD
Shelby Davis knows this from experience. When he first started
managing the New York Venture Fund in 1969, he loaded up on the
classic “go-go” stocks of that era. It worked, at least for awhile. New
York Venture was the number-one fund in the nation during its
rookie year, up 25.3 percent. This performance brought Davis and his
two partners much media attention, including a feature article in
Business Week. “I’ll never forget the headline above the photo. It read
‘Cool Trio Runs Hot Fund,’ referring to the three of us (Davis, Guy
Palmer, and Jeremy Biggs) who managed the fund,” Davis recalls.
“Let me tell you, that was like the kiss of death. When the article came
out, it all but marked the end of our hot streak. We were number one
in 1969, then in the bottom 10 percent of all funds in 1970. Our stocks
got creamed. The United States went into a tight money environment.
Interest rates were raised, many of our companies were highly leveraged,
and expectations were sky-high. That’s one difference between
then and now. Today’s small-cap companies aren’t as leveraged as
they used to be. In those days, leverage was the name of the game.
Many computer companies had to lease their equipment, because that