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DonnieDarker

Your Groundrules For Portfolio Management

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Hi there,

currently my interest in property is inversely proportional to my interest in shares - as this is where I am concentrating my savings at the moment.

I only have about £15K in shares and get suggestions on what to buy from a family adviser (worked out very well so far).

What they dont do is advise when to sell.

I was wondering if any of the investement gurus here knew of good groundrules for managing a portfolio.

I have heard of ones like if you see a 50% rise you should sell 50% of that holding. Do yuo have any others?

I am searching for a rationale of how to best manage my portfolio as I would like to sell and re-invest and feel like I know what I am doing?!

If yuo know of any good books advice would be welcome!

:rolleyes:

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Investment mythbusters!

http://www.smh.com.au/news/money/mythbuste...ge#contentSwap1

Saying sell 50% of a profitable holding is mentioned as a half way bet as a bit of a cop out by financial advisors.

Am about to start reading "Come Into My Trading Room" by Alexander Elder, interesting approach to portfolio money management and risk assessment. Its on http://books.global-investor.com, slightly cheaper than amazon i think

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Looks interesting. Thanks.

I suppose setting oneself rules could be a hiding to nothing too in that you automate your decision making process and become inflexible.

Best advice I ever had was:

never sell without knowing what your next move is. (ie. what you will invest the profits into).

That book is only £14 on @m@zon...BARGAIN

Edited by DonnieDarker

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Looks interesting. Thanks.

I suppose setting oneself rules could be a hiding to nothing too in that you automate your decision making process and become inflexible.

Best advice I ever had was:

never sell without knowing what your next move is. (ie. what you will invest the profits into).

That book is only £14 on @m@zon...BARGAIN

Two words: Capital Preservation.

When you've got a little more than say 15k, losses start to really matter. 10% loss on a portfolio of £100,000 is much harder to replace from salary than 10% loss on £10,000.... capital preservation is the defining attribute of individuals with serious money, i.e. money that can handily generate annual salary-type returns. Even if you don't have 'serious money', you should never let a trade go >8% against you. it's a simple, unemotional rule- cut losses early and play another day.

Selling when you've made a profit is harder to define. I suppose its a happy problem to have. It's common to put in stop-losses at certain stages below the current price (and above your entry). I think global equity markets will put in -ve returns for 2006, so Im out of almost all my equity positions. My macro view dictated my sell decision.

I like to cost-average into a up trending position. I.e buy at $10, if it goes up buy more at $12 etc. Staggering yourself into and staggering yourself out of a position. This is a good technique for unit trusts as commissions can eat into smaller share trades.

Finally, consider buying call options rather than directly buying, and buying puts rather than shorting. Your collateral can stay in safehavens, while you're leveraging your view on the direction of a share or market.

But I reiterate, never be too proud to admit mistakes. I make more loser trades than winners, but the difference is I cut my losses early :)

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But I reiterate, never be too proud to admit mistakes. I make more loser trades than winners, but the difference is I cut my losses early :)

Will bear this in mind. I have some EMI shares that I really should junk having lost 50% of my money on them. I will do that once I have an idea of who I want to invest into next.

The problem I am facing at the moment is the happier one of seeing a lot of growth in my small portfolio of shares and designing a tactic on when to sell them. Some of my holdings are 40% up and I've only had them for 6 months.

I figure as I dont 'need' the cash and have no idea of what to re-invest into I'll keep hold of them. I've sold too early before...

I got very lucky this year as I a) had some money to invest and B) got some good advice and c) was able to invest during market lulls.

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I have read Peter Lynch 'beat the street' recently and his outlook is different. He thinks that as long as you are still happy with a companies fundamentals then you should not sell even if it decreases by more than 8%. Obviously sell if something has drastically changed with that company. There will be negative fluctuations in most companies of 5% or more over time often for no good reason, but if the fundamentals stay strong selling every time is not a good idea. This is obviously a longer term strategy.

I'd be interested in what others think of this approach.

ps I presume this refers to large and midcaps not speculative start ups, where a 5-10% stop loss would be a good idea

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Two words: Capital Preservation.

When you've got a little more than say 15k, losses start to really matter. 10% loss on a portfolio of £100,000 is much harder to replace from salary than 10% loss on £10,000.... capital preservation is the defining attribute of individuals with serious money, i.e. money that can handily generate annual salary-type returns. Even if you don't have 'serious money', you should never let a trade go >8% against you. it's a simple, unemotional rule- cut losses early and play another day.

Selling when you've made a profit is harder to define. I suppose its a happy problem to have. It's common to put in stop-losses at certain stages below the current price (and above your entry). I think global equity markets will put in -ve returns for 2006, so Im out of almost all my equity positions. My macro view dictated my sell decision.

I like to cost-average into a up trending position. I.e buy at $10, if it goes up buy more at $12 etc. Staggering yourself into and staggering yourself out of a position. This is a good technique for unit trusts as commissions can eat into smaller share trades.

Finally, consider buying call options rather than directly buying, and buying puts rather than shorting. Your collateral can stay in safehavens, while you're leveraging your view on the direction of a share or market.

But I reiterate, never be too proud to admit mistakes. I make more loser trades than winners, but the difference is I cut my losses early :)

Good post. I agree about capital preservation.

Am currently reading "The New Market Wizards" (Schwager). Here is a quote from fund manager Victor Sperandeo:

"Over a 5-year period, I trained 38 people. Each of these people spent several months by my side while I taught them virtually everything I knew about the market. Out of these 38 people, 5 made money.

How did you choose the people you selected for training?

I wasn't very scientific about it. Basically, I w went with my instincts and whims about who might be a good trader. The people I selected were a very diverse group.

Was there any correlation between intelligence and success at trading?

Absolutely, but not in the way you think. For example, one of the people I picked was a high school dropout, who I'm sure didn't even know the alphabet. He was one of the five who made me a great deal of money.

Why did you pick him?

He was my phone clerk on the American Stock Exchange, and he was very agressive and alert. Also, he had been in Vietnam and had a hand grenade explode near him, leaving him with shrapnel in his pancreas. As a result of this experience, he was always afraid of everything. When it came to trading, he was more worried about losing than winning. He took losses very quickly.

On the other extreme of the intelligence spectrum, one of the people I trained was a genius. He had a 188 IQ, and he was on "Jeopardy" once and answered every question correctly. That same person never made a dime in trading during 5 years.

I discovered that you can't train people how to trade by just imparting knowledge. The key to trading is emotional discipline. Making money has nothing to do with intelligence. Think of all the bright people that choose careers on Wall Street. If intelligence were the key, there would be a lot more people making money trading.

You almost seem to be implying that intelligence is an impediment to successful trading. How would you explain that?

Assume that you're a brilliant student who graduates Harvard summa cum laude. You get a job with a top investment house, and within one year they hand you a $5m portfolio to manage. What would you believe about yourself? Most likely, you would assume that you're very bright and do everything right. Now, assume you find yourself in a situation where the market is going against your position. What is your reation likely to be? "I'm right." Why? Because everything you've done on life is right. You'll tend to place your IQ above the market action.

To be a successful trader, you have to be able to admin mistakes. People who are very bright don't make many mistakes. In a sense, they generally are correct. In trading, however, the person who can easily admit to being wrong is the one who walks away the winner."

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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