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Chapter 2. Evaluating Risk > So What? - Pg. 8

Evaluating Risk 8 The same effect worked in reverse. Removing the ten biggest losers increased the portfolio return to 5.1 percent. Unless you bought all 501 stocks, you could have made money, or you could have lost money, depending on the particular stocks you picked. I've done many similar tests in my search for the magic formula that would routinely turn up a list of market-beating stocks at the push of a button. Whenever I thought I'd uncovered the Holy Grail, it always turned out that a few stocks powered the portfolio's returns. So What? Here's the point! It doesn't matter if value-priced stocks are more or less risky than growth stocks if you're only buying 5, 10, or 20 stocks. Your risk hinges on only three issues: 1. 2. 3. Overall market risk Industry risk Risks specific to your stocks We'll examine overall market and industry risks, then move on to evaluate the risks specific to in- dividual stocks. Market Risk Even if you're a great stock picker, it's tough making money holding stocks in a bear, or downtrend- ing, market. On the other hand, you can make lots of mistakes and still rake in profits in strong markets. That's where the market expression: "Don't mistake a bull market for brains," came from. Consequently, overall market risk is an important factor in the risk equation.