What is Risk, Netflix Gets Crushed, Elon Buys Twitter
Definition of Risk
Risk is present in every single thing we do. The majority of the time, we don’t even consider what the risk might be to an action we take or a decision we make but think about it – risk never leaves! With the latest declining trend of the S&P 500 & NASDAQ, many investors’ risk tolerance is being challenged. It’s important to remember that risk did not just appear suddenly one day – it’s been present and we’ve all been hearing and talking about it for some time.
What is your definition of risk? Anytime you invest, whether it’s your first account or expansion of existing accounts, you should always ask yourself “why?” Think about if the investment is geared towards retirement or perhaps a more short-term need - like a new house down payment.
Here are some ways we look at the categories of investment risk:
- Permanent loss
- Under performance
Think about examples of each of these scenarios. If risk means normal market volatility to you, then you should build a portfolio that will allow your account to appreciate with less swings than the overall market. There are pros and cons to any of these approaches and ultimately your goals should dictate that strategy.
Keep a Sound Mind
Let us save you from making classic rookie mistakes based on market hype. Don’t get caught up in perceived risk without thinking about your strategy and goals.
Here are some of our favorite things to keep in mind:
- What happens today, tomorrow, next month has little bearing on where your account will end up 30 years from now
- When investors see things as a sure thing that’s the riskiest time to buy, as it drives the price up (eventually leading to a market correction)
- If the price is going up, buy less (this is true of all things in life – you’re welcome!)
- Line up your portfolio for probability and most of the time you will win, sometimes you won’t
It is natural to react to hype, but the key is to understand your goals and build a portfolio to match them. You’ll be less likely to be attracted to the shiny object – trust us.
In The News
The market does not like that Netflix is losing subscribers, despite beating earnings and revenue in January. The streaming service company had a first mover advantage (remember when they mailed DVDs?!) but you can only enjoy that position for so long until competition catches up. Netflix has built a story with investors around their strong subscription base and time will tell if they can evolve their model to keep up with new services. Let’s see what happens this quarter!
I bet you haven’t heard his name this week? Or today? Or in the last 5 minutes? The most talked about man is now the proud owner of Twitter #ElonMuskBuysTwitter
It’ll be interesting to see what happens with Twitter as many users threaten to delete their accounts (see definition of risk above) because of Elon’s strong position of free speech. He has said before that someone you hate should be allowed to say something you don’t like – and if that’s possible, that’s free speech.
Whether you are an Elon fan or not, there is no denying he has created some of the world’s most recognized brands (marketing anyone?!) and he is not afraid of the spotlight – good or bad – when it comes to his convictions. The Elon / Twitter saga is another one we are excited to watch unfold (maybe Netflix should make a movie)!
We also recently published a blog to capture the timeline of events – you can read it here.