Rank: Veteran Joined: 9/19/2011 Posts: 1,694
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C&P Knowing that investing is like surgery (the fewer cuts the better), I opt for a KISS ("Keep it Simple, Stupid) approach. If you're bullish on XYZ, buy shares of XYZ. But how?
Human instinct can prompt us to act in exactly the wrong fashion. So when taking an initial position, for example, many investors are apprehensive and choose to start with a relatively insignificant trade, say $500 worth of stock in a portfolio of $100,000 or more.
Very often the stock ends up performing as expected, but the investor doesn't fully benefit because of the nearly nonexistent size of the original trade.
Adding insult to injury, it's only after XYZ soars (and the trade is popularized and accepted by the herd) they feel comfortable taking a larger position. Of course, by then the real move has almost always been made.
In reality, your initial purchase should be your biggest one, a standardized trading unit that, as we've written about before, amounts to between 2% and 5% of your overall portfolio.
Using a fixed percentage initial allocation eliminates the subjective guessing game of choosing favorite trades. That market should do that, not us.
The expectation is that the trade will grow over time as the market rises, both as a result of market appreciation and by reinforcing the trade through subsequent purchases. The trade may also be enhanced with the addition of similar correlated assets, such as other companies from the same industry or sector group. LINK
“People will believe a big lie sooner than a little one, and if you repeat it frequently enough, people will sooner or later believe it.” ― Walter C. Langer
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