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Surprisingly enough, not only will your portfolio not be
up 25%, but in all likelihood it would probably be down. You see, while your entire focus was on the fact that
these 20 recommended stocks were going to appreciate by
25%, you failed to realize that volatility would have a
greater impact on your ROI. Each stock that you expected
would make a 25% return did in fact do so, but before it
did, each stock fell drastically due to negative market
sentiments. In all likelihood, panic would have set in and
your stop loss orders would be filled. Subsequently, you
likely would end up with a drawdown for the year. |
If you think the above is an unlikely scenario, consider
this: with the market as volatile as
it is, the average stock regularly swings 50% in either
direction. With these kinds of volatility swings,
you would suffer a
substantial drawdown and a major cash crunch on any market sell off.
In fact, the odds of you beating the market consistently is
directly related to your ability to control the volatility in
your portfolio.
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