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Risk isn’t like the weather (“Everyone talks about it, but nobody does anything about it!”). It’s something that you can manage and profit from. Here are some proven strategies:

 Buy the dips. If you bought what you think is a great stock at $10 per share and a correction sends it down to $8, don’t just crawl under a rock and wait it out; if possible, buy some more. Why not? If it’s truly a great stock and your research and logic tell you it’s still a solid investment, buy some more. Ultimately, time will pass, and the odds are good that when that stock goes to $12 or $15 or more, you’ll end up saying, “Gee whiz! I could have had it at $8!” No guts, no glory.

 Keep cash on the sidelines. This goes in tandem with the preceding point. Have some money sitting somewhere safe, liquid and earning interest waiting for an opportunity. I tell my students that if they’re ready to take the plunge with, say, $10,000, don’t invest everything in one shot. Invest half now and stagger the rest in over a few weeks or a few months. Opportunities go hand in hand with risks, so do the Boy Scouts thing and be prepared.

 Use stop-loss orders. If you have a brokerage account and it’s a major firm with a full-featured website, it has some excellent risk management tools available for you. The most commonly used tool for keeping your portfolio’s value intact is the stop-loss order. If you bought a stock at $10, then put a stop-loss order in at, say, $9, or 10 percent below the purchase price. That way, if the stock goes up, there is no limit to the upside, but if the stock goes down and hits $9, a sell order is triggered and you get out. You minimize loss. A stop-loss order can be activated for a single trading day or for an extended period of time (referred to as a GTC order, or “good ’til canceled” order). Stop-loss orders are a common feature in a stock brokerage account, but it may not be in a commodities brokerage account. Find out more about brokerage accounts in Chapter 16.

 Use put options. Put options are a great way to protect your investment during corrections or bear markets. They can be used as “insurance” to protect gains or the original principal. The put option is also used as a speculative vehicle to make money as well, but it’s included in this chapter as a risk management tool. It’s covered in detail in Chapter 13.