Investors have had a rough 2022. (That’s probably the understatement of the year.)

Which is why there’s one question that keeps popping up…

And it’s one EVERYONE should be thinking about: risk management.

Many of you already know James’ senior analyst, Bob Byrne.

Before linking up with James, Bob was a private trader for twenty years. But if you ask him what he really was, he'll tell you he was a risk manager.

In the article below, Bob will reveal his #1 secret for risk management. (You won’t hear this anywhere else.)

Before you read on…

If you follow our parent company, Paradigm Press Group, you know we manage a universe of gurus and sometimes (even often) their opinions conflict.

Jim Rickards is often at odds with James… and James is sometimes at odds with Ray Blanco…

But there’s one investment class they ALL three agree on… and they’re joining forces to make sure you know all about it.

(It’s not stocks, bonds, crypto, or a commodity.)

In fact…

For the first time ever, you’ll be able to invest alongside all three of them, leveraging their experience… connections… and network.

Mark Your Calendar for Thurs, 1 Dec 7:00pm EST

On Thursday, Dec. 1, 7PM EST, they’ll reveal everything about this brand new opportunity.

Grab your free seat right here at this link.

And read on.

My Secret to Risk Management

Bob Byrne

"The first thing you have to know is yourself. A man who knows himself can step outside himself and watch his own reactions like an observer." -- Adam Smith, The Money Game.

During my twenty years of trading, I always considered myself a risk manager.

If I managed my risk with an iron fist and kept a watchful eye on my position sizing, the results, over the long term, were typically favorable.

James asked me to chime in, so let's get started.

For two decades, I would sit in front of as many as eight trading screens and trade hundreds of thousands of shares of stock daily. For years I was a scalper, trading in and out of dozens of positions every 90 seconds.

During this time, I inadvertently developed a way to determine if I was taking on too much risk or not in the right frame of mind to trade.

Not being in the right frame of mind is code for getting overly upset over a loss or elated due to a gain: Investing, especially trading, demands near total emotional control.

Investors and traders should be aspiring stoics. You're likely to make bad decisions if you get upset or excited over a profit or loss.

Getting back to my time at the trading turret...

Any time my lower back would twinge, I knew I was taking on too much risk or wasn't in the right frame of mind.

In my experience, taking on too much risk results from trying to make too much on a single bet or continuing to add to a losing position in an attempt to "get even" with a stock or make back a loss. In either case, taking on too much risk is always terrible.

As someone who traded stocks every day for two decades, I had no choice but to recognize when I needed to course-correct and reset my risk parameters. And it was as simple as recognizing my body's tell -- Which in my case, was that twinge in my lower back.

When I felt the twinge, I knew it was time to step away from the desk, reassess my positions, and ensure that I wasn't out over my skis regarding risk and mindset.

My advice to you is simple.

If you're unsure what your body's tell is (yet), keep it simple.

Professional traders have a saying: Sell down a position until you can sleep peacefully at night.

If you carry a position or even a dozen positions causing stress or losing sleep at night, you are likely taking too much risk. And the easiest way to remedy this situation is to eliminate some or all of the risk.

Look, while my back twinge was always my intraday tell that I needed to address something, I've lost count of the number of times I realized I was uncomfortable with a position or a portfolio and immediately reduced everything by 50% or more.

The bottom line is that while emotional control is paramount when investing, you must recognize when it's time to sell down a position (or a portfolio) until you can sleep peacefully at night.

Position Sizing: Don't Swing for the Fences

I don't believe there's a one-size-fits-all approach to position sizing.

Some investors are comfortable spreading their bets across a few positions, while others keep individual bets small and place many bets.

I don't think I have a single position over a few percentage points in my portfolio dedicated to dividend-paying stocks. My risk parameters have always revolved around ensuring that no single company can adversely impact (or destroy) my portfolio.

And let's be honest for a second...

I believe devoting 20% or 25% to a single investment is swinging for the fences. If you manage a $50,000 portfolio and spread your bets across four or five stocks, if any of your positions blow up in your face and decline by 90%, your portfolio is in trouble. And that has never been a strategy I recommend to anyone.

Yes, most positions will struggle in bear markets like the one we are in today. But I'm referring to normal times or when stocks trend higher (which happens far more often than trending lower).

Simple math tells us that if we invest all of our money into a small number of positions, one bad investment can severely impact our results.

Naturally, I prefer carrying more positions while maintaining a healthy cash balance. And this means keeping my investing percentages in any one investment in the low-single digits (as a percentage of my portfolio).

As a trader and investor, I refuse to be so heavily invested in a single stock that I lose sleep at night should the worst happen (bankruptcy, bear market decline, horrible earnings report, etc.).

Put another way; I keep any single investment small enough that if the investment goes to zero tomorrow, my lifestyle remains 100% unchanged.