At ProfitScore, understanding risk is where every investment decision begins. Achieving our investment goals of generating significant capital appreciation on a risk adjusted basis requires a sound risk management plan for both bull and bear markets.
As the millennium bear market has shown, the equity market can and will decrease in value. What many investors don't realize or have forgotten is that these negative market periods can last for years or even decades. Below is a graph of the Dow Jones Industrial Average going back until the early 1900's. During this turbulent time, we have experienced three positive market cycles and three negative market cycles.
After the bear market began in January 1999, it took seven years
until September, 2006, for the Dow to reach its previous equity high.
Many investors still have not regained their losses.
It's ironic that so many financial professionals advocate buy-and-hold investment approaches rather than strategies such as ProfitScore's, to control the risk of down markets. In a remarkable book called Against the Gods: the Amazing Story of Risk, published in 1998, one of the most respected figures on Wall Street, Peter Bernstein, chronicles how the human race developed mathematics, business practices and insurance in order to deal with risk. Bernstein maintains that without the ability to deal with risk and change, business on a modern scale is not really possible.