Risk Considerations & Suitability

Noble Group does not make any investment recommendations to the users for various reasons, one of which is the importance of understanding your risk tolerance in order to determine the suitability of an investment recommendation. If a particular person is uncomfortable with the inherent risk of a growth portfolio or of a specific investment option, it is not suitable – even if it appears to match their time horizon and financial goals. For any investor, risk tolerance on investment choices will be influenced by: income, expenses, assets, liabilities, tax issues, age, marital status, dependents, tax information, participation in retirement and other benefit plans, liquidity needs (short-term and long-term), inflation or deflation, changes in income level, attitudes toward risk, etc. Since Noble Group does not collect any of above mentioned information for the purpose of identifying an investment suitability of our software users, we do not make any recommendations.

There may be different or additional factors which are not reflected on this site, but which may impact a user’s portfolio or investment decision. The information contained on this site should not be relied upon in isolation for the purpose of making an investment decision. Nothing on this site shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this site is intended to constitute a representation that any investment strategy or product is suitable for you. You should consider carefully whether any products and strategies discussed are suitable for your needs, and to obtain additional information prior to making an investment decision. Nothing on this site shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by Noble Group and/or its officers or employees, irrespective of whether or not such a communication was given at your request. Noble Group and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions. You should be aware of the general and specific risks relevant to the matters discussed on this site. You will independently, without any reliance on Noble Group, make your own judgment and decision with respect to any investment or strategy referenced on this site.

We believe that the publication of our opinions about the companies that we research is in the public interest. By downloading, you agree that the use of this investment research is at your own risk. You further agree to do your own research and due diligence before making any investment decision with respect to securities covered herein. In no event will Noble or Noble Affiliates be liable for any direct or indirect trading losses caused by any information available on this report. Think critically about our opinions and do your own research and analysis before making any investment decisions. You should seek the advice of a security professional regarding your stock transactions.

Before considering making any investment decisions, you must understand the concept of risk, the types of investment risk associated with various investments and the amount of risk that you are willing to assume.

Investment Suitability

No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. Transactions involving securities, financial instruments and strategies mentioned herein may not be suitable for all investors. You are solely responsible for deciding whether any investment or transaction is suitable for you based upon your investment goals, financial situation and tolerance for risk. You must seek independent professional advice to ascertain the investment, legal, tax, accounting, regulatory or other consequences before investing or transacting.

Investment Objectives

There are various investment objectives that can significantly affect investor suitability. For example, certain investor’s priority while investing is simply preservation of capital. They are more concerned with safety than return. Others need to construct a portfolio that produces steady current income for their current living expenses. A specific category of investors is looking for growth and income – a portfolio that generates some amount of income, but also tailored for capital appreciation. An investor’s goal is capital appreciation, when growth is crucial and current income is not necessary, such as retirement planning.

Preservation of capital – the investor is more concerned with safety than return. Treasury bills and money market funds may be most appropriate.

Current income- the investor needs a portfolio that produces steady income for current living expenses. Bonds, annuities, and stocks with high dividends (such as utility stocks) may be appropriate.

Growth and income – the investor is looking for a portfolio that generates some amount of income, but he/she is looking for capital appreciation as well (often for protection against inflation). Appropriate investments could include a mix of bonds and stocks.

Capital appreciation – the investor’s goal is likely retirement or another event in the future, where growth is required and current income is not needed. A diversified stock or mutual fund portfolio is appropriate.

Aggressive growth – the investor is looking for high-risk investments with a potential for very large returns. This is rarely the goal for an entire portfolio, but rather for a specific portion of assets. Aggressive growth funds and small-cap issues may be most appropriate.

The Concept of The Investment Risk

Risk is simply the measurable possibility of either losing value or not gaining value. In investment terms, risk is the uncertainty that an investment will deliver its expected return. In other words, risk involves the chance an investment’s actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.

A high standard deviation indicates a high degree of risk. Many companies allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A key component of the risk management process is risk assessment, which involves the determination of the risks surrounding a business or investment.

A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk an investor is willing to take, the greater the potential return. Investors need to be compensated for taking on additional risk. For example, a U.S. Treasury bond is considered one of the safest investments and when compared to a corporate bond, provides a lower rate of return. A corporation is much more likely to go bankrupt than the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.

Investing Risks

An investment in a security involves various degrees of risk, which each investor must carefully consider. Returns generated from an investment in a security may not adequately compensate investors for the business and financial risks assumed. An investor in any security could lose all or a substantial amount of their investment.

Market Risk, also called “systematic risk” or “undiversifiable risk” or “volatility”, is the risk inherent to the entire market or market segment. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification.

Liquidity Risk refers to the possibility that an investor may not be able to buy or sell an investment as and when desired or in sufficient quantities because opportunities are limited. A good example of liquidity risk is selling real estate. In most cases, it will be difficult to sell a property at any given moment should the need arise.

Currency/Exchange Rate Risk is a form of risk that arises from the change in price of one currency against another. The constant fluctuations in the foreign currency in which an investment is denominated vis-à-vis one’s home currency may add risk to the value of a security.

Social/Political/Legislative Risk. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers or military control. These types of risks are associated with the possibility of nationalization, unfavorable government action or social changes resulting in a loss of value.

Inflationary Risk, also called purchasing power risk, is the uncertainty over the future real value (after inflation) of an investment. It is the risk that future inflation will cause the purchasing power of cash flow from an investment to decline. In other words, there is a risk that inflation will undermine the performance of an investment.

Credit Risk refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment. Typically, the higher the credit risk, the higher the interest rate on the bond.

Emotional Risk. In an ideal world, people would always make optimal decisions that provide them with the greatest benefit and satisfaction. However, behavioral economics explains that humans are not always rational and are not always capable of making good decisions. The main reason for this is that humans are emotional and easily distracted beings, they often make decisions that are not in their self-interest.

Emerging Growth Company Risk

The emerging growth companies you can view on our platform are a mix of micro and nano capitalization companies. A micro-cap has a market capitalization between approximately $50 million and $300 million. Micro-cap companies have greater market capitalization than nano-caps, and less than small-, mid-, large- and mega-cap corporations. Companies with larger market capitalization do not automatically have stock prices that are higher than those companies with smaller market capitalizations. Companies with less than $50 million in market capitalization are frequently referred to as nano caps. Both nano-caps and micro-caps are known for their volatility, and as such, tend to be considered riskier than companies with larger market capitalization. Market capitalization measures the market value of a company’s outstanding shares, calculated by multiplying the stock’s price by the total number of shares outstanding.

Micro-caps also have a reputation for high risk because many have unproven products, no solid history, assets, sales or operations. Lack of liquidity and a small shareholder base also expose them to massive price shocks. Being that micro-cap stocks have market cap between $50 million and $300 million, investors must be ready for greater volatility and risk compared to the large-cap stocks in the S&P 500, for example.

Another consideration is the fact that there are vastly more micro-cap stocks on the market than there are large- and giant-cap stocks. Overall, investors may not see the same level of readily available information as with larger stocks such as Apple Inc. As a result, the limited information and vast quantity of micro-cap stocks on the market makes research extremely important to avoid fraudulent stocks and other potential pitfalls. Because many micro-cap stocks do not have to file regular financial reports with the SEC, research becomes even more difficult.

Many micro-cap stocks can be found on the “over-the-counter” (OTC) markets, such as the OTC Bulletin Board (OTCBB) and the OTC Link LLC (OTC Link), rather than national exchanges such as the New York Stock Exchange (NYSE). Unlike stocks on national exchanges, companies on these exchanges do not have to meet minimum standards such as those for net assets and numbers of shareholders.

Micro-caps also have another drawback in that investors need to pay attention to liquidity when conducting research on smaller companies. Lack of regular analyst coverage and institutional buying are additional reasons why there is less liquidity in the micro-cap markets than in larger-cap stocks.

Overall, micro-cap stocks represent a high-risk, high-reward opportunity for investors who are willing to do more research on the company involved, to determine whether it is worth the investment. This could include contacting the company directly to get the answers to any questions.

For more information about Micro-Cap stocks, please refer to U.S. Securities And Exchange Commission’s Micro-cap Stock Basics:

More information on specific risks associated with Micro-Cap stock investing
https://www.investor.gov/investing-basics/avoiding-fraud/types-fraud/microcap-fraud
https://www.investor.gov/additional-resources/general-resources/glossary/pump-dump-schemes

Past Performance

Past or simulated past performance (including back-testing) is not indicative of future results. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. Any modelling, scenario analysis or other forward-looking information herein (such as projected cashflows, yields or returns) is intended to illustrate hypothetical results based on certain assumptions (not all of which will be specified herein). Actual events or conditions may differ materially from those assumed; therefore, actual results are not guaranteed.

Types of Investment Management

There are two basic approaches to investment management: Active and Passive asset managements.

Active asset management is based on a belief that a specific style of management or analysis can produce returns that beat the market. It seeks to take advantage of inefficiencies in the market and is typically accompanied by higher than average costs (for analysts and managers who must spend time to seek out these inefficiencies).

Top-down – managers who use this approach start by looking at the market as a whole, then determine which industries and sectors are likely to do well given the current economic cycle. Once these choices are made, they then select specific stocks based on which companies are likely to do best within a particular industry.

Bottom-up – this approach ignores market conditions and expected trends. Instead, companies are evaluated based on the strength of their financial statements, product pipeline, or some other criteria. The idea is that strong companies are likely to do well no matter what market or economic conditions prevail.

Passive asset management is based on the concept that markets are efficient, that market returns cannot be surpassed regularly over time, and that low cost investments held for the long-term will provide the best returns.

Efficient market theory – this theory is based on the idea that information that impacts the markets (such as changes to company management, Fed interest rate announcements, etc.) is instantly available and processed by all investors. As a result, this information is always taken into account in market prices. Those who believe in this theory believe that there is no way to consistently beat market averages.

Indexing – one way to take advantage of the efficient market theory is to use index funds (or create a portfolio that mimics a particular index). Since index funds tend to have lower than average transaction costs and expense ratios, they can provide an edge over actively managed funds which tend to have higher costs.