November 22, 2024 • 9 mins
How To Balance Risk In Your Portfolio. www.watchdogonwallstreet.com
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it will have on everyday Americans. Author,
investment banker, consumer advocate, analyst and trader Chris Markowski.
Speaker 2 (00:16):
Stock market soaring and risk management. One thing I try
to get across to people out there is that when
it comes, when it comes to your portfolio, comes to
your portfolio, and everyone's situation is unique and different. Everyone's
at a different position in life. You cannot let you
(00:39):
cannot let risk lead to ruin. You cannot take on
a certain amount of risk in your portfolio, so therefore
that it leads to ruin again. People the whole fomo
idea out there where Gee, if I only went all
in on this sector or I only own that sector, man,
(01:02):
where would I be retirement planning? Every Like I said,
everyone's situation is unique and different.
Speaker 3 (01:11):
You know.
Speaker 2 (01:12):
So people they want to plan, they want to stop working,
They've built up a portfolio.
Speaker 3 (01:19):
How do you go about handling that?
Speaker 2 (01:21):
In a world where things come out of nowhere, things
come out of nowhere? Nicholas Talib Nason Nicholas Talub describes it,
and probably one of the major bestseller. As far as
risk management concerns, the concept of black swans. Black swans
(01:41):
stuff that comes out of nowhere that you do not see.
You don't see him coming. They happen, Okay, randomness happens,
and you know, I've talked about it, and again it's
it's Talib's concept.
Speaker 3 (01:58):
I've talked about it on the show.
Speaker 2 (01:59):
The concept of being anti fragile, where you get exposed
to risk and you're not just robust where you would
stand it, you come out better.
Speaker 3 (02:10):
On the opposite side.
Speaker 2 (02:11):
Now, I want to put this in terms, I'll throw
myself into this mix right now.
Speaker 3 (02:17):
I am not planning for retirement. I'm not.
Speaker 2 (02:24):
I am putting money away a dollar cost average invest
on a regular basis, but I have no plans at
all to retire. Now again, that could change. That could change,
and that would be a fundamental, massive change in regards
(02:47):
to how I would be managing my portfolio personally as
it stands right now. For example, Let's say let's say
that there was a major market sell off or a
bear mark in the market goes down by twenty five percent.
Obviously my portfolio would get hit with that. Everyone's portfolio
(03:09):
would get hit with that. But for someone like myself,
that's dollar cost averaging, that's not there. I'm not going
to be touching any of that money. What do I care?
That's actually good for me. That's actually good for me
because guess what, I can withstand that shock. I'm going
(03:30):
to be buying things on sale and taking advantage of it.
Speaker 3 (03:33):
So like it did.
Speaker 2 (03:34):
I explain this, people who held their head up and
had showed a little bit of courage and patience during
every financial crisis, and the dollar cost average did the
right thing, held on to their high quality companies.
Speaker 3 (03:47):
They killed it.
Speaker 2 (03:47):
You did extraordinarily. Well, now it's different. It's very, very
different when you're retired and that money that you have
set as you need. Retirement risks are asymmetric, meaning what
(04:10):
the negative risk. Okay, if you're living off of your portfolio,
living off your portfolio, the negative risks, the negative risk
to a downside to twenty percent in the market is
far far outweighs the positive of going up by twenty percent.
Speaker 3 (04:33):
Does that make sense?
Speaker 2 (04:35):
For example, if your portfolio you're early in retirement and
you take the market takes a twenty percent, or your
portfolio takes a twenty percent hit.
Speaker 3 (04:45):
That can be devastating.
Speaker 2 (04:48):
That can be devastating if you need to access that
money if you are selling stocks every month to live on. Okay,
very very difficult to do. And again, you know you
have all of these various different simulations Monte Carlos simulations,
various different things. And you know it's all about portfolio optimization,
(05:14):
going to optimize portfolio because you're optimizing. What you're doing
is you're optimizing it to and Talip talks about this
to conditions that are on the ground, to conditions that
are on the ground now, but the ground can shift.
Speaker 3 (05:37):
It will leave.
Speaker 2 (05:38):
You vulnerable, It will leave you exposed to any sort
of massive market risk, black swan events to the downside.
Again and again, Tali I highly recommend his books as
far as a risk management expert. It's against the things
(05:59):
that we look to as well when managing portfolios is
you need strategies that actually benefit from uncertainty and then
limit your downside risk. Okay, you have to have you
have to have more stable assets within a portfolio when
(06:20):
you are living off of those assets. Yeah, again, I know,
you know you see it. Sometimes you got a lot
of you know, people that are in retirement and they
start getting fomo, they start seeing eye you know what,
you know, and they change their strategy. You don't know
what's around the corner. That's the black swan, and you
can't again, you can't afford it. I always talk about
(06:42):
never let risk lead to ruin.
Speaker 3 (06:46):
You.
Speaker 2 (06:46):
You have to have a certain amount of your assets
to cover your your expenses. You know, you don't want
to worry about your everyday expenses when it comes to
your portfolio. You don't want to deal with any of
that nonsense. Okay, you want that taken care of. And
of course you want to have money for discretionary spending.
(07:09):
And there's many different ways you can go about doing this.
You know. He calls it Talib calls it, and I
like it too. He calls it the barbell Barbell strategy.
You combine very safe assets, very safe assets with some
exposure in the middle there to positive events. You don't
(07:32):
go all in, okay, you obviously you have to. You
have to change your allocation when you're at that point
in time. And then you do that on both sides,
and you got that little bit in the middle and
you got the safe stuff on the side. Again, what
it does is you can handle the shocks if you
(07:54):
do the eye. You put everything into all of the
high risk stuff out there.
Speaker 3 (07:58):
Optimization upon what the terrain is right now.
Speaker 2 (08:01):
No, no, because you don't know what tomorrow is going
to bring. And again this is you know what we
do at Markowski Investments. Everyone's situation is unique and different everyone.
You know, some people, they might be in retirement, but
their portfolio, you know, they've they've got assets that are
set aside and cash and cash equivalents to deal with
(08:24):
all of these things, and they can be afford to
be more aggressive. Again, everyone's situation is unique and different.
But I can't stress this enough. The need to the
need to understand, okay, the concept that you cannot you
cannot let risk lead to ruin. You cannot get FOMO
(08:49):
when you're at certain, you know, stage of your life
and you need to be living off that portfolio. Watchdog
on Wall street dot Com
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it will have on everyday Americans. Author,
investment banker, consumer advocate, analyst and trader Chris Markowski.
Speaker 2 (00:16):
Stock market soaring and risk management. One thing I try
to get across to people out there is that when
it comes, when it comes to your portfolio, comes to
your portfolio, and everyone's situation is unique and different. Everyone's
at a different position in life. You cannot let you
(00:39):
cannot let risk lead to ruin. You cannot take on
a certain amount of risk in your portfolio, so therefore
that it leads to ruin again. People the whole fomo
idea out there where Gee, if I only went all
in on this sector or I only own that sector, man,
(01:02):
where would I be retirement planning? Every Like I said,
everyone's situation is unique and different.
Speaker 3 (01:11):
You know.
Speaker 2 (01:12):
So people they want to plan, they want to stop working,
They've built up a portfolio.
Speaker 3 (01:19):
How do you go about handling that?
Speaker 2 (01:21):
In a world where things come out of nowhere, things
come out of nowhere? Nicholas Talib Nason Nicholas Talub describes it,
and probably one of the major bestseller. As far as
risk management concerns, the concept of black swans. Black swans
(01:41):
stuff that comes out of nowhere that you do not see.
You don't see him coming. They happen, Okay, randomness happens,
and you know, I've talked about it, and again it's
it's Talib's concept.
Speaker 3 (01:58):
I've talked about it on the show.
Speaker 2 (01:59):
The concept of being anti fragile, where you get exposed
to risk and you're not just robust where you would
stand it, you come out better.
Speaker 3 (02:10):
On the opposite side.
Speaker 2 (02:11):
Now, I want to put this in terms, I'll throw
myself into this mix right now.
Speaker 3 (02:17):
I am not planning for retirement. I'm not.
Speaker 2 (02:24):
I am putting money away a dollar cost average invest
on a regular basis, but I have no plans at
all to retire. Now again, that could change. That could change,
and that would be a fundamental, massive change in regards
(02:47):
to how I would be managing my portfolio personally as
it stands right now. For example, Let's say let's say
that there was a major market sell off or a
bear mark in the market goes down by twenty five percent.
Obviously my portfolio would get hit with that. Everyone's portfolio
(03:09):
would get hit with that. But for someone like myself,
that's dollar cost averaging, that's not there. I'm not going
to be touching any of that money. What do I care?
That's actually good for me. That's actually good for me
because guess what, I can withstand that shock. I'm going
(03:30):
to be buying things on sale and taking advantage of it.
Speaker 3 (03:33):
So like it did.
Speaker 2 (03:34):
I explain this, people who held their head up and
had showed a little bit of courage and patience during
every financial crisis, and the dollar cost average did the
right thing, held on to their high quality companies.
Speaker 3 (03:47):
They killed it.
Speaker 2 (03:47):
You did extraordinarily. Well, now it's different. It's very, very
different when you're retired and that money that you have
set as you need. Retirement risks are asymmetric, meaning what
(04:10):
the negative risk. Okay, if you're living off of your portfolio,
living off your portfolio, the negative risks, the negative risk
to a downside to twenty percent in the market is
far far outweighs the positive of going up by twenty percent.
Speaker 3 (04:33):
Does that make sense?
Speaker 2 (04:35):
For example, if your portfolio you're early in retirement and
you take the market takes a twenty percent, or your
portfolio takes a twenty percent hit.
Speaker 3 (04:45):
That can be devastating.
Speaker 2 (04:48):
That can be devastating if you need to access that
money if you are selling stocks every month to live on. Okay,
very very difficult to do. And again, you know you
have all of these various different simulations Monte Carlos simulations,
various different things. And you know it's all about portfolio optimization,
(05:14):
going to optimize portfolio because you're optimizing. What you're doing
is you're optimizing it to and Talip talks about this
to conditions that are on the ground, to conditions that
are on the ground now, but the ground can shift.
Speaker 3 (05:37):
It will leave.
Speaker 2 (05:38):
You vulnerable, It will leave you exposed to any sort
of massive market risk, black swan events to the downside.
Again and again, Tali I highly recommend his books as
far as a risk management expert. It's against the things
(05:59):
that we look to as well when managing portfolios is
you need strategies that actually benefit from uncertainty and then
limit your downside risk. Okay, you have to have you
have to have more stable assets within a portfolio when
(06:20):
you are living off of those assets. Yeah, again, I know,
you know you see it. Sometimes you got a lot
of you know, people that are in retirement and they
start getting fomo, they start seeing eye you know what,
you know, and they change their strategy. You don't know
what's around the corner. That's the black swan, and you
can't again, you can't afford it. I always talk about
(06:42):
never let risk lead to ruin.
Speaker 3 (06:46):
You.
Speaker 2 (06:46):
You have to have a certain amount of your assets
to cover your your expenses. You know, you don't want
to worry about your everyday expenses when it comes to
your portfolio. You don't want to deal with any of
that nonsense. Okay, you want that taken care of. And
of course you want to have money for discretionary spending.
(07:09):
And there's many different ways you can go about doing this.
You know. He calls it Talib calls it, and I
like it too. He calls it the barbell Barbell strategy.
You combine very safe assets, very safe assets with some
exposure in the middle there to positive events. You don't
(07:32):
go all in, okay, you obviously you have to. You
have to change your allocation when you're at that point
in time. And then you do that on both sides,
and you got that little bit in the middle and
you got the safe stuff on the side. Again, what
it does is you can handle the shocks if you
(07:54):
do the eye. You put everything into all of the
high risk stuff out there.
Speaker 3 (07:58):
Optimization upon what the terrain is right now.
Speaker 2 (08:01):
No, no, because you don't know what tomorrow is going
to bring. And again this is you know what we
do at Markowski Investments. Everyone's situation is unique and different everyone.
You know, some people, they might be in retirement, but
their portfolio, you know, they've they've got assets that are
set aside and cash and cash equivalents to deal with
(08:24):
all of these things, and they can be afford to
be more aggressive. Again, everyone's situation is unique and different.
But I can't stress this enough. The need to the
need to understand, okay, the concept that you cannot you
cannot let risk lead to ruin. You cannot get FOMO
(08:49):
when you're at certain, you know, stage of your life
and you need to be living off that portfolio. Watchdog
on Wall street dot Com
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