Doing things for the first time can be unsettling, even downright scary. People are afraid of the unknown. It’s part of our nature…an evolutionary survival mechanism. If you don’t know what something is, it may be dangerous. So steer clear!
The fear of failure or ‘looking a fool’ are also powerful deterrents for not taking risks. That’s why most people find networking events or public speaking so difficult.
But perhaps one of the most daunting tasks is to put your money at risk.
It doesn’t even have to be a huge risk, but any situation where you might end up with less than you started with is challenging. From our viewpoint however, the biggest risk of all is failing to take risks.
We’re not saying you should bet the farm. But by taking on no risks, you condemn yourself to mediocracy.
This is nowhere more evident than in the world of investing.
Sit on the sidelines long enough and you’ll forever remember those ‘what if’ and ‘should have’ moments.
Of course you don’t want to race headlong into an investment without understanding the risks either. And the best way to mitigate your risks is to be prepared. How? Arm yourself to the teeth with information.
Past events can be a great guide of what to expect in future situations. Now past performance is no guarantee of what will actually come. But we can use the past to learn from mistakes — both our own and others. As Spanish philosopher George Santayana famously said, ‘Those who cannot remember the past are condemned to repeat it.’
Remembering the past can be as simple as studying previous market crashes, and learning how to best protect your assets if a similar situation happens again. Or you can study previous bull markets to learn how you might turbocharge your gains in a soaring market.
However, sometimes the markets throw up new and unique situations. That’s the case today. We’ve never been in such a prolonged low interest rate environment. Add in slowing global economic growth and political instability, and you end up with a whole lot of confused investors.
As we’ve explained before, low interest rates aren’t having the effect traditional economic theory says they should. Central banks are running out of influence, and governments are losing their stranglehold on social control.
It all creates one heck of a dilemma. Do you plough more into the market, or do you sit this one out for a while, safeguarding your money?
Imagine this uncertainty lasts another five years, though…or 10. What if this flat, confusing situation lasts another 50 years?
Would you wait that long? Probably not. Very few investors could afford to let all of their money languish in low, or even negative, interest rate accounts for that long. That’s why we think it will only be a matter of time before mainstream investors decide to take more risks.
We see the idea of investing in small-cap stocks creeping into the mainstream media more and more often. When blue chip ASX100 stocks aren’t providing the returns, investors have little choice but to look further down the list.
That means greater interest, and greater money flowing into small-cap stocks. That’s good news for you, because you’ve already got the jump on this sector.
Simply by being an Australian Small-Cap Investigator subscriber, you know that there are juicy returns to be had on the ASX — and most of them are in small-cap stocks.
When money from the restive herd starts to flow down to smaller stocks, those returns have the potential to be magnified even more. Yes, these stocks are not without risk. But in today’s strange and unique market conditions, we feel the biggest risk by far is failing to take any risk at all.
Editor, Australian Small-Cap Investigator
Editor’s Note: This is an extract from an update originally published in Australian Small-Cap Investigator.
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