Calculating how much to invest

[Russell]

Hello ASF members,

A question this morning for how you calculate how much you're going to invest in a company.

Say for example you have $10,000. You have been keeping an eye on a certain stock for awhile and from what you have worked out, you predict it is going to trend up.

How would you calculate how much of the 10k you will trade? Is it based on what you will potentially get back from the investment? How much risk is involved? Or is it part of your overall trading plan?

I can't imagine it's something people decide on the spot

 

[VSntchr]

Depends on what the composition of my portfolio is currently like. I always aim to have at least 10% cash (bare minimum).
I allocate larger % amounts to stocks that fit my criteria perfectly..i.e. stocks with a longer track record, a stronger competitive advantage etc etc..

If I was extremely confident in a stock I would allocate up to 40% of my capital towards it.

On the contrary a stock that passed my criteria but was not my most preferred pick would receive a lower % amount. The least amount I would allocate is 7.5%. If I cant commit to allocating 7.5% then the stock simply doesn't persuade me enough to invest!

Hope this helps...

this is all from a fundamental perspective, obviously technical will be different..

 

[Russell]

That was very helpful. Thank you for the response

If you found a stock that fit your criteria perfectly, but you did not have the required capital, would you sell other stocks to invest in that stock? Even if the other stocks were doing okay? Or would you raise more capital somehow?

 

[VSntchr]

Depending on the quality and prospects of the stocks I already hold, yes I would consider selling them if a 'better' opportunity arose.

Margin money may work for some, I choose to avoid it.

 

[skc]

Hello ASF members,

A question this morning for how you calculate how much you're going to invest in a company.

Say for example you have $10,000. You have been keeping an eye on a certain stock for awhile and from what you have worked out, you predict it is going to trend up.

How would you calculate how much of the 10k you will trade? Is it based on what you will potentially get back from the investment? How much risk is involved? Or is it part of your overall trading plan?

I can't imagine it's something people decide on the spot

If you have a longish track record on your investments, you can look up Kelly Critertia which is a mathsmatical way of looking at position size.

 

[Tyler Durden]

The amount you're willing to lose