Risk management is a key element to long term investing.
It is very important we don’t become impatient and over trade tying to find a great company, we must be prepared to wait for the right buy signals and very good fundamentals before we buy.
A very important rule we must follow at all times is to never spend more than 5% of our total fund value on a single company stock, this will help limit our risk. no matter how good the trade looks we never break this rule, using this rule means we could be wrong 20 times ( if they went to zero ) before we lose the total fund value, this will never happen, please don’t break this rule.
We must also ensure we let winning trades run and close losing trades quickly, many investors find it difficult to lose money, but this is all part of investing, we must accept some small losses while accepting higher wins.
Never add to a losing trade, just close it and move on, we don’t need to be right 100% of the time ( and we won’t be ) to make great returns.
Ensure you know when you will be getting out of a trade, never buy without knowing when you will exit the trade, this is very important, we can’t just hold and hope for the best, we must know when to get out of a trade whether it is a losing or winning trade.
Good luck to all long term investors.