High risk does not equal high reward!

There is an attitude in finance that high risk equals high reward. This is apparently not true, writes Piper Terrett in this weeks Investment Strategy in MoneyWeek (my favourite financial magazine). It seems to be the case that investors like to gamble on risky stocks, hoping for a big pay off, and believe that low volatility stocks will not give a decent return. Furthermore, investment managers are keen to encourage their clients to invest in a higher volatility portfolio, and analysts 'talk up' the case for high volatility stocks in an attempt to look good to their managers, but it is apparently simply not the case that these higher volatility stocks do better than the low volatility stocks.

I have noticed that when I am choosing my weekly trade that I am attracted to stocks with higher 'beta' (stocks that move more than the market), so I will need to watch myself.... My main issue is that I think I should buy stocks that are trending. What I don't want to do is buy stocks whose trend is coming to an end, but rather stocks that have had a temporary setback, or stocks that have had a cyclical drop in price and whose turn to shine is approaching.

One such stock is Carclo, and this week I am setting a stop order to go long (buying) Carclo, a technical plastics manufacturer, quoted on the London Stock Exchange (LSE).

2015 04 19 Carclo

 

The share price of Carclo has fallen massively since the end of 2012 and seemed to hit a low in November last year, since when it has risen significantly.  Why am I buying it?

  • it has made a new 10wk high

  • the ma20 is now rising through the ma50

  • there are two higher lows in place

  • it looks  like its trending upwards


My stop order to go long EasyJet last week was not triggered, so I have revised my order to go long if the share price rises above the high of last week. If you want to see my thoughts about the markets last week, then click here (6 mins), and if you are interested in how my open positions are performing, then click here (10 mins).

Hope you have a great week!

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