Here’s some portfolio management principles and a simple trading strategy. Courtesy of Willem Faul, our Head of Private Clients.
- Your total exposure should never be more than 2x your capital amount.
- Your total exposure should never be more than 3x your capital amount [with shorts].
- Your total exposure to one share should never be more than 1x your capital amount.
- Start by buying only half of your planned position; see how easy it is to get the stock.
- If it moves in your direction buy the rest, but if it moves against you, stop buying.
- And allocate the stock you have already bought.
Protection via stop loss
- Why take a stop loss: to protect yourself from wipe-out; and to get the stock cheaper.
- When to take a stop loss:
- When there is a 3 ½ % move against you
- When it breaks the support line
- When you start to feel uncomfortable.
- Anyone can make good calls, but that doesn’t mean success.
- It depends on how you manage the position.
- Let the profits run: don’t think total profits, think price and %.
- Take the trades you see, take the stops where needed, and don’t overexpose yourself.
Ignore outside opinions
- This is your strategy and your performance.
- Don’t get confused by what others say, ignore outside opinions.
- It is your money: you decide — if you are not the one making the decisions then you might as well let someone else trade for you.
Know what you trade
- Trade only the liquid stocks: where you can get out quickly if you need to.
- Trade only the low risk stocks: where you do not take unnecessary chances.
- Trust the fundamentals: know the business, know the company, read.
Understand the market
- When you are right: let it run, then take your profit.
- When you are wrong: then you must learn from it.
- When you don’t understand: stop, consolidate, ask, read, find out.
- No share owes you money, take your loss, move on, don’t try to get back at it.