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Managing Risk Advice

Posted On: 2007-02-04
Length: 17:26

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Welcome to on-demand radio with The Market Guys. This is AJ Monte, and with me I have Rick Swope. We are fresh back from the Financial Forum in Toronto. Rick, that was one heck of an event, wouldn't you say?

Yes, it was. It was the kick-off event for 2007 for us, the Toronto Financial Forum. Had several thousand people in attendance up there. It was one of the best, one of the best financial events, I think, that Canada has. I know on our keynote address on Thursday, we had probably over 600 people I think was the final count on that, and as always, we see some of the same themes, which is what we want to talk a little bit about today.

The theme of buying cheap stocks. That was the theme that we saw. People looking to buy stocks under $5 because, thinking that you could control more shares. But in fact, this could be one of the riskiest types of strategies in existence right now, trying to find cheap stocks.

That's right. The problem with finding the cheap stocks, we're going to actually talk a little bit more about this, but we want to set this up for you for sometime in the next several weeks. We're actually going to do a special interview, we just kind of want to throw that out for you so you can keep your eye out for that. But we have one of our listeners we'll actually be interviewing on this subject of a cheap stock, and some of the characteristics of how that stock trades, so we'll be talking a little bit more about this over the next couple of weeks. Today, though, one of the things that we really saw a need for, and we saw a tremendous response to, and that is the trade smart clubs. We want to talk a little bit today with our audience, AJ, about how the professional traders trade, the kind of support system they have in place, and why the accountability club, the clubs or the organizations that help people stay disciplined, improve their experience and expertise, all of these sorts of things, why this is so important.

Well, Rick, you know, we both come from trading floors and we again, from our experience we know the importance of having someone to hold the traders accountable to losses, or at least holding them to the discipline so that they don't lose. It's very easy for a professional trader to manage the risk because it's not just up to them to take the loss. If you're trading company money, you'll have a head trader standing over your shoulder waiting to see if you're taking too large of a position, that's all they do. They don't trade they just sit there and monitor the positions of each one of the traders. When I was on the trading floor trading gold and silver, same thing. You're surrounded by traders. If you make a mistake, it's going to be pretty public. You're not going to be able to hide that or tuck it away into some kind of an ostrich strategy where you bury your head in the sand. You're going to be held accountable. Now when you are on the floor, your job as a manager of that trading floor was to also to manage risk.

That's exactly right. In fact, I used to walk around the trading floor, and I used to watch for our traders who had an open position. I would ask them three questions. I talked about this before, but it bears repeating at this point. Here are the three questions, and if you've not heard this before, be ready to come back, review this and write this down, because these are good questions for you at...

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