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Successful investing demands a cool head and the ability to remain unruffled, whatever the situation.
A basic credo will serve you well, no matter what the markets are doing. Always stick to this plan of action, irrespective of current market conditions.
Firstly, safeguard your capital by diversifying your assets. While diversification is not a fail-safe system and does not totally protect against loss, it is an important strategy that protects your money from uncertainties in unpredictable markets.
The essence of investment diversification is to spread your money over different asset classes: cash, stocks, bonds and alternative investments, where appropriate.
In the stocks class, make sure you havea mix of blue chip companies, mid-cap and there is no harm in even having one or two small cap companies. In the bonds class, select highly rated bonds.
While alternative investments (hedge funds, etc) might not be right for everyone's portfolio, at least investigate this option with a financial adviser.
Secondly, know when to stop when it comes to stocks. When one of your stocks is making a profit don't hang on to it. You might wait too long and the stock could suddenly plummet.
Rather sell when you have made reasonable gains, be pleased with the profit and move on to the next investment. Conversely, don't hold on to a stock that isfalling in the hope that it will turn around and rise.
The trick is not to become emotionally involved but to remain detached throughout the process. If you have a tendency to be swept away by euphoria or immobilised by despair, set yourself both upward and downward exit levels.
Thirdly, remain flexible up to a point. If you see that you have seriously misjudged a market trend, admit your mistake and take steps to curtail the damage.
But if you're sure that your portfolio has been wisely constructed and you have confidence in its management, it might be better to ride out the trend. If you can suffer the short-term losses, hanging in for the long ride could ultimately give yougreater gains.
Finally, understand that losing is part of the game. Accept that you will occasionally make an investment that doesn't pan out.
If you stick to these basic principles, you should be able to keep your emotions in check and keep them from interfering with wise investment decisions.
If you have difficulty sticking to a disciplined approach in times of crisis, turn to an investment adviser to help you maintain control.
Don't be driven by fear or panic and don't allow yourself to be swept away by excitement. Keeping cool and calm will ensure that you collect in the long run.
l The writer is a director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail email@example.com