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Chasing Returns

For you to achieve your goals, you must actively manage the risk-reward relationship, the relationship of risk to performance. The greater the risk, the greater the potential for reward. While all of this can be calculated out mathematically, we often go with our gut instincts and buy or sell based on emotional data points, not scientific ones. In this chapter, I'll review some of each. After all, there is more than one way to climb a mountain and more then one way to achieve financial success.

An interesting way to start this discussion is to look at how the S&P 500 has responded to recessions. Table 12-1 shows the gain in the S&P 500 for the 6- and 12-month periods following major down markets.


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