| One of the cardinal sins in investing is putting too many eggs in one basket. When your portfolio is heavily skewed towards a few positions, you're walking a tightrope. A significant downturn in just one of these investments can send your entire portfolio into a tailspin. There's no doubt we're in rough waters right now. The market landscape ahead is as unpredictable as it's been since the pandemic hit. Things could turn out just fine, and that's what we're all hoping for. But it would be naive to ignore how swiftly the market can change course, as we've seen in recent weeks. The Art of Position Sizing So, how do we protect ourselves? Enter the concept of position sizing. It's not just about picking the right stocks. It's about deciding how much of your portfolio each stock should occupy. Here are some approaches to consider: - The Fixed Dollar Approach: Invest a set amount - say, $1,000 - in each position regardless of the stock price.
- The Percentage Play: Allocate a fixed percentage of your portfolio to each investment, perhaps 5% or 10%.
- Volatility-Based Sizing: Adjust your position size based on the stock's volatility, using indicators like the Average True Range (ATR). It calculates the average range between the high and low prices of an asset over a specific period, typically 14 days. ATR doesn't predict price direction, but it shows how much an asset typically moves in a given timeframe.
- Risk-Based Allocation: Calculate your position size based on your risk tolerance for each trade, often tied to your stop-loss strategy.
Each method has its merits, and the best choice depends on your personal risk tolerance, strategy, and financial goals. Personally, I've always favored capping individual stock positions at 4% of my portfolio (excluding income-focused investments like preferred stocks or bonds). | 
ليست هناك تعليقات:
إرسال تعليق