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One bad decision can derail your finances. Dr. Andrew Stotz, CFA, studied more than 600 real-world investment failures from his My Worst Investment Ever podcast and turned the preventable mistakes behind them into five steps to reduce risk.
The steps apply to any investment. With Uncovered Thai Stocks, where trading can be thin and broker research is scarce, several of them carry extra weight.
Each of the five steps to reduce risk before you invest comes down to one honest question.
What would make you walk away?
Could you live with losing it all?
Who will buy it from you?
Who can move your money?
Would you still want it if nobody else were talking about it?
1. Research risk separately from return
What would make you walk away? Build the return case first, then come back with a different assignment: find the reason not to invest. Excitement tends to steer research toward confirmation, so give risk its own time and attention. Check it independently, using financial records and outcomes for comparable investments. If others have checked the opportunity, establish what they verified and whose interests they served.
With little broker research on Uncovered Thai Stocks, most of the checking is yours to do. The MD&A and the annual general meeting are good places to start, and our Reading between the lines series compares consecutive MD&As.
2. Survive a total loss
Could you live with losing it all? Count everything a decision could cost, including borrowing and any money you add later. Debt can outlast the investment and leave you owing more than you put in. Write down the most one investment could cost you without changing how you live, and treat every additional contribution as a new decision.
In thinly traded stocks, bad news can cause sharp gap-downs, and a small free float leaves a narrow exit when many holders want out at once. A stock marked with a CF (Caution – Free Float) sign may also be subject to suspension or delisting.
3. Know who might buy next
Who will buy it from you? Easy entry doesn’t guarantee easy exit. Work out how you will get your money back before you invest, who could realistically buy, and what you’d receive after fees or a quick-sale discount. Not liking the price you’re offered is different from having no buyer at all. Stated value means little if you can’t turn an investment into cash when you need it.
For Uncovered Thai Stocks, low daily volume and a small free float can leave few buyers when you need one. Selling quickly may mean accepting a lower price than the one on screen. We look at this trade-off in more detail in Risks and Potential Rewards Investing in Uncovered Thai Stocks.
4. Maintain oversight and control
Who can move your money? Trust alone isn’t a control. Know who holds your assets and who can trade, transfer, or withdraw them. Keep them in an account you control, and never send money to an individual’s personal account for them to invest on your behalf. Before any transfer, slow down and verify who you’re paying using independently verified contact details.
Get statements directly from the institution that holds your assets; a manager’s own reports and screenshots aren’t independent evidence. Controls can’t prevent every fraud, but they help you spot problems while you can still act.
The same test applies to the claims you see about a stock. Thinly traded stocks can be targets for pump-and-dump schemes, where coordinated trades create a false impression of volume and momentum. A screenshot of gains, a tip in a chat group, or a sudden jump in volume isn’t independent evidence. Before acting on them, check the company’s filings, official announcements, and audited financial statements on the SET website.
5. Recognize when you are vulnerable
Would you still want it if nobody else were talking about it? Knowing the steps doesn’t mean you’ll follow them. Greed can make you overlook risks, and fear can push you to rush in, rush out, or cling to hopes of recovery.
Watch for three scenarios in particular: when someone you trust is involved, when you’re already invested and losing, and after a success. Each lines up with a bias from 5 Ways Your Mind Works Against Your Portfolio: herding, anchoring, and overconfidence.
Seeing a quiet stock take off without you can trigger the urge we described in FOMO: The Enemy Within. When you notice the pull, pause, repeat the first four steps, and ask someone with no stake in the outcome to challenge your thinking.
Before your next investment, go through the five steps to reduce risk
The goal is to take risks you understand and can afford. Higher risk can bring higher potential returns, though nothing is guaranteed, and the five steps help you judge whether a risk is worth it. A tightrope walker doesn’t avoid the height. They prepare for it.
Dr. Stotz’s full audio course is free, runs seven short episodes (about 95 minutes total), and ends by applying all five steps to a real estate flip that went wrong.
Listen to the full series and download the one-page risk checklist to keep by your desk.
Every quarter, we rank 300 Uncovered Thai Stocks and publish our Top 50 rankings, along with free reports in English and Thai. Use them as a starting point for your own research, not as investment recommendations.
Which of these steps do you wish you’d known about sooner?