This is the time of year that we begin to reflect on the events of the last 12 months and begin to think about how we can make better the year to come.  We have just lived through one of the ugliest years in the history of the stock market.  Many are disillusioned.  Most have suffered tremendous financial loss.  It leads one to question who and what to trust.  It is human to want to trust.  It is part of who we are as social beings.  Yet, our recent financial debacle points up the importance of taking control of your own financial situation. 

I want you to consider what seems to me to be almost too elementary in that its’ very mention as an investment strategy will evoke a, “Why didn’t I think of that?” response.  For many of us, one of our most important assets is our home.  Would you even consider not insuring your home?  Yet most of us have neglected doing the same on our stock portfolio.  When you pay your homeowners insurance are you upset if your home didn’t burn down and then consider your insurance purchase as a waste?  Maybe some of you view it that way, but more likely, the premium you pay is peace of mind that you are protecting your home and its’ value. There are many perils that can negatively affect the value of your home.  Homeowner’s insurance policies list those perils that the insurance company will protect against.  So it also is with your stock portfolio.  There are many factors that can hurt you and your investments.  The following is a list of some of those factors:

·         Market Risk- the market buying and selling pressure controlled by supply and demand that will move the stock either up or down.

·         Interest Rate Risk- This will effect primarily fixed income investments like bonds.  Typically as interest rates rise bonds will decrease.

·         Inflation Risk- This will affect your purchasing power and the value of the dollar.

·         Business Risk- This is the risk that the business that you are investing in is not financially strong and is not running the business using best practices and methods.

·         Credit Risk- This is the risk that addresses the possible inability of the bond issuer being able to repay debt at maturity.

·         Currency Risk- This risk has more to do with investment in stocks that carry risk due to fluctuation in international currency exchange rates.

·         Political Risk- We deal with this risk daily in the volatile global environment that we currently live.  Geo/political events can decimate the value of your stock portfolio in a heartbeat.

·         Liquidity Risk- Some stocks contain limited liquidity therefore creating susceptibility to volatile movement and bad fills caused by large bid/ask spreads.

This weeks’ educational article has to do with insuring your portfolio.  It is called a “Married Put”.  I ask, “Why in the world would you not consider insuring your stock portfolio after really understanding the risks?”  We wish all of you joyous holiday season and a happy and prosperous new year.  The band of traders at http://www.marketamer.com want to help you be prosperous in 2009.  Best, Robin