Need to Know: Central banks drove this vital skill out of investor brains. Heres how to relearn it.
Staying above the turmoil is easier said than done for investors these days.
The calm that settled on global markets after the Bank of Englands unprecedented intervention to shore up U.K. bonds seems to be fading, with stock futures in the red and a risk-averse mood building for Thursday.
Its hard to find a big money manager who isnt worried out there, amid fears of the Fed breaking something as inflation soars and Europes energy crisis worsens.
With central banks the BoE being a current exception no longer providing liquidity support to markets, investors now need to be more nimble if they hope to preserve their capital, or even wring some alpha out of their portfolios.
Thats the message from Stock Traders Dailyand portfolio manager atEquity Logic, Thomas H. Kee Jr., who in our call of the day says they must learn or relearn one vital skill to survive these turbulent times.
Unfortunately, many in todays market have completely forgotten how to manage risk, and over the past decade the FOMC has dissuaded Wall Street from being concerned about risk, Kee said in a recent post, which he discussed with MarketWatch in an interview.
In short, some investors have mastered the art of not managing risk at all, said Kee. And managing risk has been a core part of his Stock Traders Daily strategies from the internet bubbles peak through during a decade of stimulus. Since 2000, he notes, some of the most opportune times have come during times of widespread fear in the market.
At its heart, risk management both reduces the temptations that come with greed, and the stress that comes with the fear cycles, letting investing flow through economic and market upheaval, said Kee.
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