Apologies for the multiple answers but I thought it best to make a small visual graph how I think of risk. I look at risk before action in these buckets. This is my learning from last 2 years.
So, I have learnt that we carry different types of risk in the stock market when we buy a stock.
We carry earning growth risk.
We carry stock valuation risk.
We carry management quality risk.
We carry market valuation risk.
I feel, a novice like myself should invest when all the stars align. I feel if I am already going to carry the other risks which I mostly cannot avoid, the only risk I can avoid is carrying a market risk.
To avoid market risk, one needs a watchlist of stocks. Then one can keep following the businesses. Then when Mr. Market is very pessimistic, novices like me can deploy our hard earned money. At that moment we have taken out to a decent degree market risk.
The thing is; I feel people are unconsciously investing (speculating) in the hope of getting a high. The kind of high’s we used to get in 2017. The mind is seeking those high’s (it’s addicted). It wants a dopamine rush. So people invest again and again trying to get that rush. Only slowly will they accept the fact that that old rush is not available anymore. Then they will slide into fixed income. That is when I will slide out of fixed income into equities.
I don’t need a rush. I am calm and relaxed. I will wait.