Warren Buffett has long warned investors about the dangers of using borrowed money to buy stocks. In his 2017 letter to Berkshire Hathaway shareholders, he explained the risk as follows: “There is simply no telling how far stocks can fall in a short period. Even if your borrowings...
Warren Buffett once noted that "an investor needs do very few things right as long as he avoids big mistakes." Howard Marks echoed this sentiment when he said, "trying to avoid losses is more important than striving for great investment successes." While many investors focus on finding the...
Deciding when to sell is just as important as choosing when to buy, and emotions such as hope, fear, and greed can significantly influence this decision. Knowing when to sell a stock is often difficult because selling a well-performing stock prematurely may lead to missing out on substantial...
This article will show you how to write an investment policy statement (IPS), specifically for the average do-it-yourself (DIY) retail investor. An IPS is a formal document that outlines one's objectives and investment strategy. Most investors should have an IPS because it helps them consolidate their investment strategies...
This article will explain how to effectively rebalance your investment portfolio. Portfolio rebalancing involves realigning the proportions of various assets in your portfolio to restore the weight of each asset class to its original target. This is important, because merely setting up a portfolio and then neglecting it...
This article will show you how to measure your portfolio's risk-adjusted performance. While many investors often focus on calculating the total return over a period of time, inclusive of capital gains, dividends, interest, and/or distributions, this only paints half the picture. Further, simply comparing your portfolio's performance to...
Hedging is the insurance of investing. Therefore, the purpose of a hedge in a portfolio is to move in the opposite direction of another asset in your portfolio, preferably at a delta of negative one (to represent negative correlation). By properly hedging your stock portfolio, you're protecting yourself...
This article will discuss the value of investing in the Volatility Index as a hedge. The Volatility Index is officially called the Chicago Board of Exchange (CBOE) Volatility Index, or the VIX Index (aka VIX) for short. The VIX is a real-time market index that tracks the 30-day...
Inflation can significantly reduce the real returns of your investments over time, making it a key concern for any serious investor. As prices rise, the purchasing power of your portfolio may decline unless you take strategic actions. This post will therefore discuss the importance of inflation, its relationship...