Rob's Rules of Risk Management
30 Key takeaways from 30+ years of investing. By Rob Isbitts, creator of ETF Yourself.
I. Risk and Philosophy (The Foundation)
Investment management = risk management.
My #1 rule is Avoid Big Loss (ABL).
Play offense and defense at the same time in your portfolio.
Big losses are catastrophic; small losses are great learning experiences.
Know your % of portfolio loss limit on each position before you buy.
Prioritize protecting what you have over “How much can I make”
Your success is measured by your “absolute return,” not some benchmark.
Ignore S&P 500 Envy.
II. ROAR Framework (Reward Opportunity And Risk)
Charts are the market telling a story. Our job: learn how to listen!
Use the ROAR Score to replace guesswork with objective evidence.
Define the risk before attempting the reward.
The ROAR Score helps you find “high percentage shots” to take.
Position size must be small enough for its failure to not be significant to the total.
The goal should be low Standard Deviation Investing (a.k.a. a smoother ride).
A portfolio is like a successful sports team: different players blend together to win.
III. Execution and Tactics (The Process)
A consistent sell rule is more important than any buy rule.
Sell when the stock tells you it is tired (charts help us do that!)
Never try to catch a “falling knife.”
Tactical Rotation among positions is gradually replacing the old “buy and hold.”
Invest only from a pre-approved “Depth Chart” (your shopping list).
Total Return, not yield. High yield ETFs just pay you your own money back.
Consider portfolio supplements like bond ladders and option collars.
Cash is an asset too. Not simply a place to put assets when few good choices exist.
IV. Mindset and Control (The Edge)
You do not need a lot of time to invest in a way that pursues your unique goals.
The market doesn’t care who you are. Humility is mandatory.
Stop trying to predict the future.
Your edge is not intelligence; your edge is emotional control.
Buy/hold/sell “ratings” are a Wall Street sales tool. Don’t pay them much attention.
Every big mistake comes from ignoring the process.
Like running a business, the goal is not to be “right,” but to stay in business.