I think that risk is an important factor for all investors to think about before making a purchase and even a sale.
Even the best investment guru's make mistakes from time to time. If you look at the Gurufocus.com’s bargain stocks you'll notice that most of the money managers have at least one investment on the list. Even the greatest investor ever, Warren Buffett is down 21% and 22% on two companies (First Data & Lexmark) respectively.
This brings me to my thought on risk.
Risk is associated with two things: The company you're buying and the time you intend own the stock.
Buffett himself is notorious for "not knowing" what will happen next year; however, he does understand that as time goes by each business he chooses becomes less and less risky.
This is huge! Unfortunately, most investors, regardless of whether they think of themselves as long term or not often fail to hold the right investment long enough. They think of risk in terms of price drops in the short term. Now I'm not suggesting you haphazardly go through your stock screener and buy and hold just any ole' stock.
What I am suggesting is that once you get a really good business in your portfolio, you should practice the style of investing Charlie Munger likes... "Just sit on your ass!"
It's no secret that to be a good long term investor you have to have the right temperament and being able to hold investments long enough to see 1,000% and more is the key ingredient in my opinion! Just remember that risk systematically decreases the longer you hold a good company because it has time to reveal its true value, which is usually good!
I cannot stress this enough. When I first started issuing research reports for PigsGetRich, the first 4 companies I recommended (NXTL, WMB, CC, & ACF) each dropped between 20% and 40% within the first 1 to 4 months only to become some of the best winners in our portfolio with gains of 500%, 1,000%, 200%, and 1,000% respectively.
The point being, don’t panic if you buy the right company at the wrong time. Trust your reasoning and let the risk decrease the longer you hold the stock. If I would have panicked I would never have had such impressive gains.
Jonathan D. Poland is the Founder, Editor and Chief of the PigsGetRich Investment Network. www.pigsgetrich.com