A quick checklist for safer investments

Morphic Asset Management

Ellerston Capital

Risk Management is a key part of our framework at Morphic Asset Management. In today’s post, Morphic’s head of Macro and Risk, Geoff Wood, discusses five essential steps in their risk management process.

1. Work out how much you're willing to lose on any investment.

Don't get too carried away with thinking about the wins too early. While you can't control the outcome of an event, you can control how much you're willing to lose. Controlling the losses is what is part of making a good portfolio that gives good returns over the long run.

2. Plan your exit strategy.

Ask yourself, what is it that it's going take either in price movement or fundamental news flow for you to admit that you're wrong? It's really good to think these things through in advance. We say, what does wrong look like? That means that when you're in the heat of the moment and your investments moved against you and you're losing money, you're not selling in a rash moment. You've thought about this in advance and you have a plan to stick to.

3. Work out your position sizing.

Once you've got your amount you're willing to lose and the price that you're going to admit you're wrong at, you can back out the size that your investment needs to be. That can ensure that you've got consistent sizing across all the investments within side your portfolio.

4. Keep an investment log.

It's very important and good discipline, we find, to write down and keep an investment log. You want to write down where you are in an investment, how much you are willing to do, and the reasons you're in it. This helps keep you consistent, and once again it stops panic selling and making rash decisions.

5. Accept your mistakes and learn from them.

Investing, like any competitive discipline, involves making mistakes. Typically, the best investors are those that made the most mistakes and then learned from them and kept getting back up. We'd recommend that you write down the mistakes that you make as you go along and then keep learning from those. Put them in a point that you can see. Maybe it's next to your desk. Try and reemphasize these points, and retrain your mind so that you don't make these bad habits time and time again.

Contributed by Morphic Asset Management.


Morphic is a Sydney-based investment manager that has a strong record for delivering high risk-adjusted returns from investing in global equities in a way that doesn’t harm the environment, society or people.

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