Risk management strategy for stock investment

Many investors worry about how to manage their stock portfolios to lower risks

>> Shares soar on the rise of pillar stocks

Many investors worry about how to manage their portfolios to lower risks and allocate resources so they can keep their current assets as well as survive and reinvest when attractive opportunities come in the future.

Stock market in panic

Vietnam's stock market has started a bearish cycle after almost two years of uninterrupted rises. When these unfavorable events occur simultaneously and shock the stock market in a year when many organizations and experts predict that this market will rise by between 1,800 and 2,000 points, it may be quite rare.

The major shock to the stock market was caused by a number of factors, including the Russia-Ukraine war, high inflation, a fast rate increase by the FED and many other central banks, a sharp rise in the value of the USD, and the possibility of an economic recession.

A number of investment funds and institutional investors adjusted their investing approach and heavily structured their portfolios in response to this circumstance. Nearly all of 2022 was sold by foreign investors net (except June). As a result, bluechip, smallcap, and midcap equities all experienced steep declines to "unbelievable" lows relative to their base valuations, with companies in the real estate, banking, and energy sectors particularly hard hit.

Respecting the rules of investing

When focusing solely on the upward trend of the stock market as a whole and the upward movements of specific equities, investors run the risk of making some intrinsic mistakes because they neglect to consider the potential negative outcomes if the stock market doesn't behave as anticipated.

The VN-Index dropped from 1,530 points earlier in 2022 to less than 1,000 points by the end of October. A major problem for many investors during a downturn is maintaining their capital, practicing risk management, and picking and holding equities carefully. Many investors continually make mistakes because they invest in stocks while being emotionally driven, they ignore investment guidelines, or they lack stock investing experience.

Investors who failed to comply with hedging paid the price as a result of numerous unfavorable reports and sell-offs. Investors should keep in mind that during a significant stock market drop, many equities might lose up to 80–90% of their value. Risk management is therefore an essential tactic for both short-term and long-term investors.

The bear cycle will come to an end

The stock market's downward trend won't persist longer than nine months or a year. The retracement phase can run from a few weeks to a few months, assuming that the stock market can correct from March, April, to November, establishing a double bottom or triple bottom around 1,000-1,100 points.

>> Shares extend rally with high liquidity

Except for a few outstanding investors, many other investors experienced substantial losses during the stock market's downturn. For many individual investors, maintaining investment guidelines is a significant challenge. Investors should reconsider their approach to the market, their analytical process, and their stock selection, and always increase their expertise and learn from their mistakes.

Fluctuations of VN-Index

When the COVID-19 pandemic first emerged at the end of March 2020, numerous stocks experienced severe declines before resuming their upward trajectory. At a time when many equities are falling to low levels, purchasing and accumulating stocks should be taken seriously with a time horizon of at least 3-6 months or longer.

Be greedy when others are fearful

Nobody has ever regretted adopting the value investing method, which places more emphasis on specific investment possibilities than the overall stock market. Although some investors believe that the bottom to purchase at is between 980 and 1,000 points, it is not advised to invest heavily when the VN-Index is at that level because it could fall as low as 900 to 910 points or even lower.

Value investing can be seen from a wider perspective if, in short-term investing, investors are particularly interested in the timing and point of stock investments. If the VN-Index falls much below the support level, it is not a major issue. What matters more, then, that the stock is being offered at a significant discount to its intrinsic value? Simply allocating funds to a small number of stocks and holding them for a while makes up the remainder of the story. Of course, this approach is difficult for some investors because it calls for perseverance to acquire and hold stocks without being influenced by the stock market's short-term fluctuations.

Many leading stocks that have just declined significantly are good choices for purchase. The stock investment may not be the best one compared to some other investing channels, but it may be appropriate for some new investors who are unsure of how to allocate assets and make investments.