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Avoiding a Permanent Loss of Capital

The global credit crisis of 2007-2009 left most investors - even professional investors - with deep scars. It also provided would-be investors with reasons to remain on the sidelines. However, if our aim as investors is to increase our understanding, to take control of our own finances and investments, then the 2007-2009 years provided us with an important lesson: that an understanding of risk, and the control of risk, is as important as our search for returns.

Identifying the Three Major Risks:

Controlling Investment Risk

Understandably, many private investors find it hard to assess the three major risks in companies/stocks.

These risks can be categorised as;

  1. The business risk - the risk that the business model or backdrop deteriorates from here and that past levels of profitability are unlikely to be achieved again in the future.
  1. The financial risk - the risk of inappropriate financing and debt levels which could expose the company to rights issues or other re-financings leading to dilution and losses for investors.
  1. The valuation risk - the risk of overpaying for the shares.

If you can't assess risk in stocks in this way, then that is reason enough for you to query why you should be, or have been, buying individual shares. Any stock that gillenmarkets recommends on its website is assessed in this manner providing subscribers with a high level of confidence that the stocks selected have minimum risk of a permanent loss, no matter what market conditions hit us.

3 Steps to Making a Success of Investing:

I have put forward a fairly simple proposition in all of the 1-day seminars I have done since 2005 as well as in the weekly investment bulletins delivered to subscribers of gillenmarkets since the website was launched in November 2009. Those three steps are;

  1. Buy value and minimise the risks of a permanent loss
  2. Diversify
  3. Don't let volatility knock you off course

The gillenmarkets website exists to assist you to do just that. Understanding the value in stocks, funds and across the various asset classes is the essential first step to a solid investment plan. Diversification is easy to understand but many investors pay only lip service to it. And many investors mistakenly treat volatility as risk. It is not. If you understand the three risks as outlined above then volatility can be an opportunity as it will be easier for you to determine whether you need to cut a loss or invest additional monies.

Don't Mix Up Investing With Speculating or Trading
Many people involved in the stock market try and trade their way to returns. No matter what propaganda you might hear espoused in the media or otherwise, trading markets is a zero-sum game, and any gains are likely to accrue to the professional traders working in investment companies, hedge funds or elsewhere. But everyone can benefit from the returns that stock markets offer over the medium-term: markets, if fairly valued, progress upwards over time to reflect the growth in economies, business and property. In short, investing is not a zero-sum game!

Today's Conundrum For Investors
The conundrum for investors today is that you cannot earn much of a return (income) from risk free assets like bank deposits. And it will likely get worse. Governments and central banks are sacrificing the savers to bail out the borrowers. Of course, risk assets carry above average risks due to the debt overhang in the developed world, sluggish economic growth globally and the drag of the Eurozone crisis. We think about this conundrum all the time on the gillenmarkets website and have put forward a number of investment themes to ensure subscribers buy value and minimise risk. Here are a few such examples;

  1. The US and European global defensive consumer franchise stocks that are relatively immune to the economy, have strong balance sheets, decent dividends and growing exposure to emerging markets. We have been promoting this theme and providing indepth coverage of such stocks for over two years now, and it continues to work well.
  1. We have been consistently highlighting stock market listed funds with yields of 5% plus and where those yields look sustainable. We cover both exchange-traded funds and investment companies quoted on stock markets that fit this bill.
  1. We have consistently outlined a value-based approach to selecting a portfolio of stocks from the FTSE 100 Index which has proven itself over the years as effective at keeping you out of overvalued stocks and hence generating above average returns while taking minimum risk. The approach takes no more than a couple of hours a year to implement.

Independent Advice & Low-cost Online Dealing
The internet is revolutionising private client investing. Today, you can deal online cheaply and easily. In addition, you can gain access to professional independent and unbiased investment advice at a very modest cost. Now you can distance yourself from the industry sellers, which includes stockbrokers, spread-betting operators and the plethora of insurance product salesmen.

Ardle Culleton
13th July 2012