There are 2 sides to the investment game viz. return and risk. If you are earning good returns on your portfolio but the risk of your portfolio is too high, you have to change course. Always evaluate your portfolio returns on a risk-adjusted basis. Also keep constantly evaluating whether there are any disasters waiting to happen in your portfolio. For example; are there are companies in your portfolio which are highly leveraged? Are there companies whose business models are likely to be hit by disruptions? Are there companies in your portfolio which are commodity based and hence dependent on the super cycle? Are there companies in your portfolio that are losing out to competition both in terms of market share and profit margins? Each of these points is a risk highlighter and must be acted upon immediately.

Also when we talk of risk, we need to understand if the risk is a systematic one or an unsystematic one. The systematic risk cannot be diversified away and it is only the unsystematic risk that can be diversified. The difference between systematic and unsystematic risk lies at the core of managing the risk of your portfolio. The whole idea of managing risk is to help you get more value from your long term investment. It will help you actually generate wealth over the long term; and it has to be in risk adjusted terms!