The objective of developing a stock trading strategy is to recoup the loss during the financial crisis in the period 2007/2008/2009. The total loss amounts to over 90% of total investment. Use of leverage contributes to the dramatic decline in portfolio value when the market moves in opposite direction against investment objective.
The experiences learned in the financial crisis would be beneficial to investment, or more appropriately stocking trading, strategy development. It will be emphasized on not to make the same mistakes again.
It may appear that an increase in an order of multiple in portfolio value is unachievable in short time. But real experience exists that a portfolio can drop to less than 10% of value within a time frame of less than two years . Hypothetically, if the investment were made in the reverse direction, it would result in a gain of over 1000%. Therefore, the most important factor is the right choice in investment decision.
The equity market was very volatile during the financial crisis and economic recession. Currently, the stock market is less volatile and investors are very cautious on their investment portfolio. Since the available investment fund is significantly reduced, a more aggressive investment strategy is needed in order to grow the portfolio value significantly. Also leverage will be used to magnify the trading result. However, the destructive impact of leverage to the portfolio value is observed during the financial crisis. Therefore cautions on the use of leverage should be emphasized.
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