THE DEBATE OVER POSITION SIZING - ValueWalk
@wellhandy : #positionsizingsaveslives
By Investment Master Class “If you wake up thinking about a position, it’s too big” Steve Clarke “Make your position size more a function of not how much you can make, but really how much you can lose. So manage…
risks and rewards using percentage or dollars to calculate which is better?
Reply to @bensontan : i think depends on timeframes and time horizons. I don't imagine a very short term trader will use %.
thanks for sharing. interesting.
waking up I firstly saw this good note., thinking position...http://stepfeed.com/11-arab-reactions-to-t... covfefe Meaning?
Chim, for me for performance wise, I only calculated at the end of the year sum up realized gain and loss plus dividends divided by capital; simple calculation for me.
Position sizing, usually it will be around max 20% for one counter; I have occasions that I increased it to 25-30% when I averaged up when the pick was correct.
What if I am wrong? It depends on what went is wrong? Fundamentally market is weak or the company itself got a big problem? If it is the latter, I will probably cut loss and run. Below are my style for selecting stocks, it may or may not need to hit all 3, just to guide me when I screen my stocks.
(1) Normally I don't buy highly geared companies, low or no debt works best for me most of the time so the chance of company liquidity problems are usually low. Many companies gone bust due to liquidity issues.
(2) Get paid while I wait for market to appreciate the value of the stock, so at least 3-4% dividend while waiting.
(3) Low 0.5-0.7x PB or P/NTA provides enough margin of safety, I don't even need it to go back to 1x to make capital gain ultimately.
My strategy is if I know what I am buying, I will stomach the risk better. So far it works for me as I am building my first pot of gold, will it change? Perhaps when it reaches a meaningful size, I will tend to diversify more and size is smaller to protect capital.
Some of you say if your portfolio is not beating STI might as well buy into STI ETF why waste time do active investing?
For me I am not a fund manager, I don't have to beat any performance indicator, what I have to do it to make sure it meets my objective for example enough dividends to pay for my cash flow expenses which index ETF is not used for such objectives, perhaps a REIT ETF could do the trick, I have not compared the returns for the REIT ETF in SGX so can't say much yet.
Keeping it simple with clear objective in kind is always my stance.
Reply to @hk1 : Okay understand now, we are different league one . @Amethyst bro will be interested in AAA bond at 6% yield. You all can discuss in depth! Hahaha
tqvm this the best in note
sell to the sleeping points.
two brothers couldn't sleep and woke me up to sell.
" sell until you can sleep, I went back to my sweet dreams."
I who invest went to sleep,yet he who saw could not, poor vest appetite.
Mr Chua On... The Risk Control Mechanism
"We practise prudent risk management and have an internal stop-loss control mechanism well in place. In fact, our traders have a 25% stop-loss limit.
"How it works is: every trader would be allocated a certain amount of funds to be traded. If they incur a 20% loss, they will be warned via our online trading system. The moment losses amount to 25%, all positions by the trader have to be squared off immediately. He would be barred from trading for at least a week, and he would have to write a report to explain why he incurred the losses.
"The board of directors would then review his performance. If the board accepts his explanation, he would be reinstated as a trader at an appropriate time. However, this time, his 25% stop-loss control would be based on a reduced capital basis.
"Our risk management control mechanism is an institutionalised process."
this is more complex than I thought.
because I don't intend to add more cash injections into my account, so MWRR is just XIRR of portfolio values over time.
But if there is new money injected, MWRR is a calculation distorted by the timing of those injections (meaning adding cash from salary to investing/trading account) and doesn't reflect the true management skill of the portfolio.
if we use XIRR on our account (assume account is part cash and part investment and treat allocation/withdrawal of cash into/from investment), it is MWRR of the investment portion.
we can only do TWRR of the whole account (cash+investment), if we treat each new money allocation into the account together with a subperiod and is a more fair comparison.
However benchmarks based on price for sti etf however is inherently MWRR because of the nature of tracking indices that are already capitalization weighted. (that means money flows.)
so therefore, for the individual, if capital is fixed, I feel using MWRR is alright since it is like for like comparison.
However, if there are are cash injections/withdrawal, unless the individual uses TWRR for tracking, using XIRR on account + injections/withdrawals will mean MWRR and that will distort performance positively/negatively and thuse not suitable for comparison sake.
you are right @bgting.
"Finding annualized return is too tedious for me LOL.
For me as of 17 feb 2017, STI is up 7.88% and my portfolio is up 15.36%.
Caveat: My portfolio gains include cash injection from monthly savings LOL."
What you are tracking though, is your overall assets under management. Which is not a bad thing to track. It makes sense that you'd want to know how much you are managing or even how much your net worth is (approximately)."
I happened to think that YTD calculation is enough instead of annualizing it,
whether TWRR or MWRR.
however, I would not take account of my cash injections as a direct addition to the portfolio gain. ie. if portfolio is $100K and cash injection is $1000, I would not see it as a 1% gain. many bloggers' calculations online happen to have this 'feature'.
brilliant explanation. You should really pull this out into a post.
I also agree MWRR is relevant for retail. (perhaps someone else would like to try answering why. :) )
Excel IRR, used in the normal sense, is really MWRR for multiple inflows/outflows if using portfolio values.
I agree with TWRR for pro managers but don't disagree with MWRR for pro managers.
because they get the inflows/outflows regardless whether they want it or not and they still should have to perform. Besides, most benchmarks for comparison with TWRR have a degree of money weight as well.
basically, I do think just using xirr is good enough. just account for the cash injections and withdrawals as flows.
however, that does not mean when you exit a trade and put it into your cash parking account, it counts as a withdrawal. lol
e.g. if your account is 50% cash and 50% stocks, the RR should be calculated for the entire account and not just the 50% stocks. LOL ;)
Reply to @ThumbTackInvestor : bo pian bgting too pro liao.
very sensitive to professionally used terms. (not a bad thing, to just be clear, everybody learns more. thumbs up)
maybe you should 'watch your language'. ROFL #joking
To add, the units don't change unless there is inflow or outflow of funds.
make things simple. buy one bond leverage and buy another one
earn the extra from the 2nd bond. settled. double yr bet if you dare leverage 3x more.
Reply to @bgting : it could be bank bond, say UOB. You can take a private loan at 1.2% pa interest and buy another one if you dare. If the price appreciate, you can profit, if not just keep it for the half yearly dividends.
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