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Although it’s easy to forget sometimes, a share is not a lottery ticket... it’s part-ownership of a business. -- Peter Lynch, American Businessman, 1944

The last six out of seven Fridays the stock markets have closed down. That 4 o’clock closing bell couldn’t ring soon enough. The old saying “sell in May and go away... come back after Labor Day,” may not always be the best advice, but it’s been sounding pretty good to me on recent Fridays. When moods like this strike me I find it beneficial to go back to the basics.

Sunday afternoon I prepared a traditional turkey dinner. The bones and other extras went into the freezer to use for soup at a later date. An analogy popped into my head that I thought was pretty witty — to make a good soup you need a good stock. Think about it! Besides the fact that I may need a vacation; this does apply in the world of investments almost as much as it does in the kitchen. Start with a good stock.

Markets don’t go straight up, nor do they go straight down. Ever changing economic and political events will always influence the markets. Reminding myself what it’s all about keeps me grounded and able to stay in the game for the long haul. What exactly is stock and why do we purchase it in the first place? Stock is an equity ownership investment in a corporation to raise capital for growth and expansion. Investors purchase shares of stock understanding the risks involved with hope that the return will outweigh the risk.

Occasionally we run into times of change. Most of us don’t like change and my experience is that a great deal of change springs forth from pain. Humans have progressed over the years through the agricultural revolution, the industrial revolution, the S&L crisis, the birth of the Internet and now we’ll navigate through this subprime slime. Each of these evolutions has brought about historic innovation and change whether it is specific inventions or new regulations. As the subprime crisis continues to take its toll on the world’s financial institutions — and those they were meant to serve — let’s pause and examine what led us to this point and what lessons may be learned. There are three items that all played important roles in the making of the credit crunch:

1. Lax lending requirements

2. Ineffective regulations

3. Unrealistic expectations

While the first two are beyond our control as individual investor’s, the third is not. What defines realistic expectations? I’d like to submit that an ability to recognize and assess risk in all its forms helps is the starting point for determining what a “realistic” expectation is. One of life’s lessons is that unrealistic expectations may lead to disappointment. Hmm. And if expectations are overly unrealistic, one could surmise that the disappointment would only increase proportionately.

Although some investments are riskier than others, none are without risk. Sometimes they are masked, for example, by an “investment-grade” ranking or mitigated by, say, the Federal Reserve’s efforts to stabilize the economy. But risks are always present, and must be recognized and assessed.

Risk includes interest-rate risk, market risk, idiosyncratic risk, credit risk, inflation risk, liquidity risk and, most importantly, the “bottom-line” risk that your investment results ultimately will not be adequate to allow you to do what you had planned.

Any time you overlook, forget or ignore these risks, you are at increased risk. Yet risks are impossible not to take. Stash your cash in the strongest, most secure bank vault on earth? You run the very real risk of losing to inflation, meaning that your dollars will erode in value over time.

Put your nest egg into real estate, assuming your property will appreciate? That, of course, was one of the mistakes that fueled the subprime debacle.

And while the worst of the credit crisis may be over, it probably isn’t finished. Nor is it likely to be the last financial crisis that many of us will see. If risk and your tolerance for it raise questions about your own portfolio it’s probably time to take a realistic look at your holdings and make sure they match your personal requirements and comfort level.

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Darcie Guerin is a financial adviser and branch manager at Raymond James & Associates Inc. at 606 Bald Eagle Drive, suite 401, Marco Island. Contact her at Darcie.Guerin@raymondjames.com, 389-1041 or toll-free (866) 343-0882.