Wednesday, 15 August 2012

How will you protect your portfolio against systemic shocks such as market panics?

The Master Investor has structured his portfolio and investment strategy so that he will survive even the most extreme market conditions.

If the market collapses overnight, will you live to invest another day?  You have to structure your system so that the answer to this question is "Yes!"

The first thing to do is to acknowledge that anything can and will happen in the markets.  Generate several worst-case scenarios in your mind.  Then ask yourself:  if any of these things happened, how would you be affected - and what would you do?

The Master Investor's primary protection is their judicious use of leverage.  Every time the market crashes we hear stories of people who lose their shirt because they were over-leveraged.  The Master Investor simply doesn't get himself into this position.  

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