A wall with several yoga mats hanging on it. It introduces the metaphor of a yoga mat threat or risk to a portfolio.
Image by Ben Kerckx from Pixabay 

The most serious risk to your portfolio is also incredibly simple and boring. That’s what makes it so dangerous.

One of my favorite thinkers and writers, Dr. Pippa Malmgren, recently published “5 Sharp Stories to Engage your Clients.” While she was writing for business leaders, retail investors can also benefit tremendously from her advice.

In the article, Dr. Malmgren provides examples of how to generate conversations with busy leaders by offering something important and interesting.

All 5 stories are worth reading, but one of them particularly jumped out to me:

“Don’t you think it’s interesting that the US and Russia spend trillions of dollars on defense only to find the biggest threat events happened with tools that cost a few dollars?” “What?” “Yes, on 9/11, the terrorists used box cutters you can buy from any hardware store for $5 to take control of those planes. In Ukraine, they are using yoga mats.” “Yoga mats?” “Yes, it seems that a yoga mat over your head hides your body’s heat signature. Satellites can’t see you sneaking up on a tank. A yoga mat is a powerful tool in a world with satellite-based intelligence. I wonder what the box cutter/yoga mat of your business is?”

Dr. Pippa’s Pen & Podcast

I love how Dr. Malmgren relates this to business. Every organization tries to manage risk. But have they protected themselves against seemingly simple threats that can cause irreparable damage?

The same logic applies to investing.

There are loads of articles and books written about how to evaluate a company. But while buying a single losing stock can hurt, that’s not usually the reason why an investor’s entire portfolio suffers.

The real box cutter/yoga-mat threat to your portfolio is simple and boring…yet extremely dangerous.

It comes down to cash management. Choosing one bad stock alone shouldn’t hurt you too badly. But investing 50% of your portfolio in one bad stock? That’ll crush you.

It’s even more dangerous with stock options. If you deploy too much cash at one time, you can easily blow up your entire portfolio.

Next week, I’ll publish an article on managing and deploying cash in your options trading portfolio. My goal is to help you prevent a box cutter/yoga mat event. If you’re not yet subscribed, sign up now so you don’t miss it.

Jason Milton

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