Most investors love the lure of an aggressive growth investment strategy. Whether it’s the sizzle of a specific strategy, the thrill of hitting a ‘home run’, or the euphoria of knowing you are ‘living just a little on the edge’, investors love to talk about their aggressive growth strategies (especially if they’re winning).
All too often though, investors get in when these strategies are red-hot and being aggressively marketed by those working in the financial services industry. The result? An investor’s emotions get the best of them and they end up chasing a ‘can’t lose opportunity’. Let’s take a look at two examples to refresh our memories:
- Internet and technology stocks that investors couldn’t lose on causing the Technology Bubble to inflate…and eventually burst!
- Mortgage backed securities, derivative, and synthetic products that investors couldn’t lose on causing the Housing Bubble to inflate…and eventually burst!
Nearly every investor during these bubbles and times of irrational exuberance made one critical mistake: They had no clearly defined exit strategy to minimize their downside exposure and loss. Subsequently, investors rode the ride down to the point their pain threshold of loss became so great, they sold. Investments were bought high at or near their peak, and sold low at or near their bottom. This is a contrarian strategy to investment success and it’s a loser’s game.
The Self Empowered Investor recognizes the value of having a small percentage of an investor’s portfolio in an aggressive growth strategy, provided it is within an investor’s risk tolerance and financial goals/objectives.
Here’s where we differ from the financial services industry: We strongly believe that any aggressive growth strategy MUST manage an investor’s risk with clearly defined entry and exit triggers. These triggers could be in the form of a moving average, specific dates, or specific price targets.
Does your aggressive growth strategy have clearly defined entry and exit triggers? Or are you strapped in and ready for the next ride down to the bottom? The choice is yours.