This article concludes my five part newsletter series I published a couple of years ago on investments – Letting Your Winners Run and Protecting Your Downside. Part 5 0f 5 – How It All Works Together (The Final Exciting Chapter): Okay, now how does this all work together? First, select the investments you want, making sure you diversify between assets and across industries. Now pick somewhere between 20 and 25 investments and put equal amounts in all of them (keeping position sizes between 4 and 5 percent of assets.) Keep track of your stop losses – about 15% to 25% of the investment. The worst case situation – an investment drops below your stop loss. If you follow your stop and sell at the open the next day, with the position size of 4-5% your worst loss will be around 1 to 1 1/2% percent of your assets. A few of these will probably hurt a little, but you have small losses to deal with rather than big ones. If a couple of investments take off, you can let your winners run, using the stops to stay in the investment and then tighten your stop loss and when you sell you will [...]
Financial Musings of a Burbank CPA: Letting your investment winners run and protecting your downside Part 4 of 5
This article continues my five part newsletter series I published a couple of years ago on investments – Letting Your Winners Run and Protecting Your Downside (this stuff never gets old!) Part 4 0f 5 – The Trailing Stop Loss: Ok, you are in your investments; now when should get out of them? The answer is the trailing stop loss. When you buy an investment, set a stop loss of 15 – 25% of the investment value; if the asset drops that amount, you sell on the market opening the next day (this will prevent a sudden drop in price and rebound, called a whipsaw, taking you out of an investment by hitting your stop loss then rebounding back above – wait until the close and see if you are still below your stop. Also it is not a good idea to log your stop losses in with your broker as they will be automatically exercised instead of waiting for the close; keep them in your head or on a spreadsheet.) The 15 – 25% stop loss will keep you in the trade long enough to give the investment time to become profitable without stopping out too soon. The reason to [...]
Financial Musings of a Burbank CPA: Letting your investment winners run and protecting your downside Part 3 of 5
This article continues my five part newsletter series I published a couple of years ago on investments – Letting Your Winners Run and Protecting Your Downside (this stuff never gets old!) Part 3 0f 5 – Asset Allocation and Industry Diversification: When you are investing, an important consideration to minimize losses is to not put too much of your investing capital into any one idea. A good position sizing rule of thumb is to limit each particular investment to 4 to 5 percent maximum of your total investible assets (one exception is if you are in a plan that invests in stock of the company you work for and you have investment options, do not invest more than 10% maximum in your company.) This will limit your risk by spreading it out over a bunch of investments. Next time in Part 4, I will talk a little bit about trailing stop losses and how they protect you from major portfolio disasters. For financial, accounting and tax musings, You can count on us to count for you! Email: bstonercpa@sbcglobal.net Phone: 818-317-6035 Website: www.briantstonercpa.com AWARDED BEST ACCOUNTANT IN BURBANK, CA BY BEST BUSINESSES 2016, 2015 AND 2014! Download My Free App! (A Kind of Digital Business Card) For Android [...]