Saturday, August 15, 2020
I generally don’t get into the weeds of portfolio balancing or position size as I think that’s more personal preference but here’s what I do in my account.
The foundation of my research, methodology and practice is built on managing my risk. Regarding position size, I generally start a new position with about 3% of my equity portfolio. So, with a $1,000,000 account I would buy shares of Apple, for instance, that would equal $30,000. With more speculative trades I would trade about half that amount.
Traditional investment advice would have you rebalancing annually by trimming winners and adding to losers to realign with whatever recommended portfolio mix you are targeting. This rebalancing practice generally ignores the idea of letting winners run and cutting losses early..in fact this practice does the opposite..it can cut your winners early and just make matters worse by adding to your losers.
My work centers more around scaling in or out based on my research, not some cookie cutter pie chart that recommends a particular distribution exposure to all asset classes. I don’t want to be dragged down by the energy sector right now for example. I’m driving a Bucatti not a Pinto.
I have grown individual positions that now represent 10% or more of my portfolio. I’m not going to sell them just because they have grown. I’m going to sell (buy) them or scale out (in) when my research suggests that I should based on hundreds of years of historical price data that keeps on repeating.
So, when I share with you my performance data please understand I don’t make large bets but generally maintain 30-40 positions (mostly large cap, well known companies) ranging from 1% to 10% in position size. This is all designed to manage my risk.
I maintain core holdings, my trades tend to occur in clusters generally around key broader market reversals and I do this without trading too much. I am mostly long term while actively managing the throttle. Am I always right? Of course not. But, I bet I’m right more than most and you can decide for yourself as all performance data is published here.
Year to date I’m up 24%. Year to date the Dow is down 2%.
You can be the judge.
Housekeeping note: I am not making investment recommendations. I have no idea what your investment goals are or what your risk tolerance is. You are responsible for your own investments. I am showing you my identification and analysis of historic repeating patterns. I am sharing what I have learned about forecasting equity and debt instruments. I am attempting to explain how important risk management is and how I have built all of my trading ideas around it. I am sharing with you the trades I make. You can choose to do whatever you want.
Going forward, in addition to publishing my weekly broader market review I will continue to highlight and comment on individual stocks and ETF’s, however, the Trade Alert page will be limited to my buys and sells only instead of including every stock I highlight or comment on as there have been too many to cover effectively after beginning the expansion last November.
Broader Market Review
The major averages continue to push higher in the face of all the craziness going on around us. I expect some weakness early next week but Nasdaq sure looks like it wants to get up to at least 12,000 sooner rather than later. We will have a better idea of a peak occurring and subsequent reversal lower if we get a more parabolic push to finish the intermediate term expansion cycle we are in. They usually finish like they began (see initial trajectory off the Corona Crash low).
This final push would put the Dow and S&P 500 at or near record highs with other sectors trying to get there as well if they haven’t already arrived. The more they all align at their respective and unique resistance or support levels the more likely a significant reversal will occur. The sooner we can identify these reversal zones the better we can beat Wall Street at its own game.
With QE 5X or whatever the stimulus turns out to be, it’s rocket fuel until it isn’t. I feel pretty good about being 35% in cash after about three weeks of trimming on the way up. I bought some TSLA and SPCE last week and I’m ready for opportunities as they present and I’m prepared for the lower entries I expect nearer election time.
Forecasts for the Dow, S&P 500 and Nasdaq:
Dow
S&P 500
Nasdaq
Individual Stocks
Beginning in my July 13th weekly review, “Hokey Pokey in Oz”, I began highlighting the individual stocks and ETF’s that I expect to deliver the highest returns during the next intermediate term ramp higher that I expect to occur following the election and into 2021. This is the sixth and final week and about 50 stocks later. You can find all of the highlighted stocks in the last five weekly reviews.
YUM
ZS
AMD
AYX
BE
I did buy some TSLA last week. Price crossed over important resistance and broke its historical pattern. This could signal another huge expansion like we saw recently and I want some exposure as TSLA is really the only one I missed last year after letting fear get in my way when I knew to buy it under $200.
TSLA
I also bought some SPCE. I know its’ not Elon but it might be a sympathy play, I like the risk/reward and I want some exposure here.
SPCE
I’m happy to answer any questions you might have and for those of you who are new I recommend reading some of my archived posts to become more familiar with what I do, how I do it and whether it is helpful to you.
Have a joy filled week,
Don