Don’t worry. It’s not this portfolio.
That is the title of MSN Money - Investing section’s headline story. Here’s the rest of the story:
Hedge fund Amaranth Advisors sent a letter to investors warning that an energy bet gone wrong will result in massive losses for the fund, CNBC’s David Faber reported this morning.
Amaranth, an $8 billion asset management behemoth started in 2000, was up 22% going into September. But in the letter, it warned that it would be down in excess of 35% year-to-date as it unwinds a disastrous natural gas trade.
Natural gas prices sank 10% to a two-year low last Thursday, based on another bigger-than-expected rise in inventories that one analysts described as a natural-gas glut.
The letter assured investors the funds has met every margin call to date, but one has to wonder how investors will react, Faber reported.
Since our portfolio is performing so well, I figure that a real life RISK related story is a good way to balance out the expectations. It is important for an investor to have Healthy Expectations. This is true for most things in life, including poker and online option trading. A sound strategy with well defined risk and reward will help you:
- not panic when things are going bad and
- stay in control when things are going well
As Master Sheng-yen said:
Be soft in your practice. Think of the method as a fine silvery stream, not a raging waterfall. Follow the stream, have faith in its course. It will go its own way, meandering here, trickling there. It will find the grooves, the cracks, the crevices. Just follow it. Never let it out of your sight. It will take you….
