Thursday, July 28, 2005

Changing circumstances...

In my previous post, I mentioned that circumstances can change, and I was referring to risk taking. I am not adverse to risk as a concept, but I like to make sure it is reasonably calcuted. Those calculations change on occation though, and this should be considered.

Not long ago, a friend and I were talking about investments. He had taken $15,000.00 and turned it into $700K. He wanted to know what I would do in his shoes. He believed that he still had a sound investment strategy, but he was looking for more information and thought I might be a source.

Perspective is an important thing. My friend was looking at this as the result of his $15K investment. He was wondering what to do next. I had a very different perspective, I was looking at it as "WHAT TO DO WITH $700,000.00?" Those are really two different questions. Again, losing $15K hurts, losing $700K can change your life dramatically for the worse.

I was able to explain to my friend that I thought it might be wise to move much of the $700K into something that was almost risk-free, perhaps blue chip stocks (now my true colors start to shine as many people think...that is still risky), or evey T-bills (happy now) or something similar. I would then look to re-invest a small portion, maybe 10%, back in the original idea or something else that can generate astounding returns with tremendous risk.

When I play the pinksheet market, I do something similar to this. I invest in small enough incraments that if I lose it, it does not hurt too much, typically about $1000.00. I then watch this money move, either up or down. I have pre-set numbers that I work with with regards to return. On my pinksheet stocks I like to see at least 3x return. Once I see this, I pull out my principle AND a healthy return of doubling my money. I then watch the rest of the money (equivalent to my original investment) and decide what to do with it when the time is right. I have been rather fortunate playing this market this way. Again, it should be understood, this is a risky place to put money. I have been lucky, most people are not.

I do not know what my friend is going to do. I hope for his and his family's sake, he decides to do something not too risky with that HUGE some of money, but that is his decision now. As for me, well, you see how I do it. When the circumstances change (read: my investment becomes rather large) I change my position. It is more fun to play on the houses money...



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