It was back in 2019, not long after quitting the rat race

At that time, I wanted to share my investing journey. But I didn't know how to speak on stage.

So, in one of the speaking classes I attended, my trainer asked me:

Then I said:

And the trainer took a good look at me, and started laughing.

He said:

Then 2022 happened.

Looking back, I almost doubted myself about investing after the trainer made that comment. But I reminded myself I spent six years as a bonds analyst. And what investing in bonds taught me is: risk management.

You see, when you can reduce as much “default risk” in a bond portfolio, you’re almost guaranteed your passive income in retirement. Billionaire investor Howard Marks built an entire career out of investing in junk bonds.

So what’s risk management? It’s being able to reduce your chances of taking a permanent capital loss.

I repeat: risk management is to reduce your chances of taking permanent capital losses.

And when you control your downside, the upside WILL take care of itself.

In 1999, Cisco Systems was one of the biggest companies in 2000, revenues were growing at a strong double-digit returns per year. Just like Nvidia, Cisco was the backbone of the entire dotcom bubble, providing the critical structure of routers and switches to connect computer networks and support high bandwidth requirements for the new internet world.

However, if you draw a line from peak to peak, Cisco was dead in the money for the next 19 years!

As an ex research analyst, I can tell you no fund manager would buy such a stock if they knew how the future of Cisco would look like. And very few individual investors would buy Cisco knowing this as well.

Yet, at that time, Mr. Market was pushing the throttle on Cisco shares – pumping shares to record highs. At one point, shares of Cisco’s market cap briefly surpassed Microsoft during the dotcom peak.

Today, as we look ahead into 2026, fund managers have no choice but to bet on the biggest companies – aka the Magnificent Seven – in the S&P 500. Why? Fund managers worry they will fall behind their peers. Put it this way, the top tech giants already account for a significant portion of the US stock market performance. Which means, if you don’t follow what everyone else is doing, you look silly. More importantly, you’d probably underperform the market. And fund managers can say goodbye to their fat performance bonus and promotion.

As today’s stock market hits a new high, everything looks calm. I know, it feels logical to go full steam ahead. It’s hard not to believe Nvidia will continue to go up, the Magnificent Seven will continue to go up.

Here’s the thing: we don’t have to be put in a fund manager position.

So what has this got to do with risk management? Risk management is also knowing what NOT to do. We can bet heavily on the best performers with rich valuations today. But we don’t have to.

One of the most powerful privileges I have as a retail investor is I don’t have to take whatever Mr. Market offers me each day. Benjamin Graham, whose mentor to Warren Buffett wrote this in the Intelligent Investor:

“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”

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Instead, I ask myself:

• Am I paying the right price for this stock?
• What are the company's competitive advantages?
• Is it making predictable profits or only a one-off profit from the latest quarter?

I have the privilege of choosing when not to bet.

With that, you want to buy high-quality assets without overpaying – AKA a reasonable price. That’s risk management.

And that’s how you want to compound returns to hit your financial freedom.​

Willie Keng, CFA

Founder, dividendtitan.com

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