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PR Newswire
31-10-2023, 07:54 AM
If you are a stock trader, your money management guideline will mean that you bet about 2 % to 3 % of your fund in each stock.
But if you are a fundamental investor constructing your stock picking portfolio, how do you determine how much to buy for each stock?
I have a target of 30 stocks in my stock portfolio. A simple approach of having the same amount for each of the 30 stocks meant about 3.3% of my fund for each stock.
But we all don’t normally allocate the same amount to each stock. If you follow the Expectancy and Kelly ideas, it meant having more for those stocks with higher conviction.
I thus ended up with 3 categories of stocks – High conviction, average conviction and not so good conviction.
I allocate more to those in the high conviction group with as high as 7 % to 8 % of my funds here. Of course, there are only 5 to 6 stocks in this category while most of the rest are in the average category where I have 3 % to 4% of my funds.
The challenge with this allocation plan is that they must all add up to 100% of my funds.
Do you have a better approach?
But if you are a fundamental investor constructing your stock picking portfolio, how do you determine how much to buy for each stock?
I have a target of 30 stocks in my stock portfolio. A simple approach of having the same amount for each of the 30 stocks meant about 3.3% of my fund for each stock.
But we all don’t normally allocate the same amount to each stock. If you follow the Expectancy and Kelly ideas, it meant having more for those stocks with higher conviction.
I thus ended up with 3 categories of stocks – High conviction, average conviction and not so good conviction.
I allocate more to those in the high conviction group with as high as 7 % to 8 % of my funds here. Of course, there are only 5 to 6 stocks in this category while most of the rest are in the average category where I have 3 % to 4% of my funds.
The challenge with this allocation plan is that they must all add up to 100% of my funds.
Do you have a better approach?