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Invest 100% cash in shares?

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SamLau

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Hi again,

Im just thinking whether it is good practice to put all my capital into shares?
I currently have all 50K in 5 open positions. Is it better to leave come cash
for that opportunity to buy something i like?

thanks again
 
Depends on which direction the market is going for me and what % cash I might hold, if any. For most of last year I was 80% cash and that's back to 20% now. During the bullmarket I was about 50% drawn down on a Margin Loan for most of the time, so no cash of my own, but using the banks. Wish I had have been 50% drawn down for the past 3 months... At the moment you need to make your best guess of which way the market is going short, medium, long term and adjust cash accordingly. Also, If you are fully invested and see something you want to buy that looks to have more potential than what you're holding, nothing wrong with switching out of something and into the new stock. Most would probably say that being in some cash (or all) over the past little bit, and now, would have been a prudent idea. Is it going to be over the next few months? Crystal ball is cloudy.
 
Another consideration added to that put forward by Kennas you can also look at it from a simple math/probability perspective.

There are two schools of thought; place all you cash into a small basket of stocks and watch that basket very carefully, or accept that a broader portfolio will help eliminate missing out on some stocks that will fly.

Historical testing shows me that its better to buy 20 - 30 positions rather than 10. The probability is that I will then capture 1 or 2 that really go hard (like MEO is now for example) and therefore increase the chances of a higher return. In fact 50 smaller positions is even better than 20 but 50 increases the return because its more likely to catch the outliers.

This testing does not consider one's ability to actually select the better quality stocks that will trend. I'm sure some will argue that if you do your homework you could find those 5 that go hard. I don't subscribe to that school nor am I arguing against it. I take the view that I can't pick those 5 stocks and that the market will give what the market will give. Its my job to be on it when the market gives it.

Nick
 
Kennas / Nick,

How does this work in relation to your position size / risk per trade?

Say you have $100K in cash, and you decided that market is bullish so you want to be 80% in shares.

Do you size your position (say 2% risk) based on capital of $80K? In which cas, you will have to accept that the positions you hold may or may not actually be worth $80K in total?

Or is it something else all together?

Thanks
 
beamstas said:
$80,000 / 50 = $1600 per position total $ value.
Click to expand...

How is this related to risk management rules like the 2% rule?

Using 2% rule means your positions will be of different size.

Or are you risking $1600 per trade? In which case your total positions will be many times $80K.

And surely you won't have 50 positions risking $1600 each all open at the same time.
 

It's just splitting up your money into portions and buying shares with each portion of money... $1,600 total value per parcel + $20,000 cash in the bank.
 
beamstas said:
It's just splitting up your money into portions and buying shares with each portion of money... $1,600 total value per parcel + $20,000 cash in the bank.
Click to expand...

Appreciate your post. But can you at least try to answer the question?

How does splitting total money into equal portions relate to risk management like 2% rule?

I will accept "not related" as an answer.
 
skc said:
I will accept "not related" as an answer.
Click to expand...

lol beats "apples and oranges " as an answer when he cannot come up with something thats not available in the "book "

no offense intended
 
and to be honest holding numerous trade parcels of $1600 each is not a viable proposition in my view just based on the % moves needed ,

but hey each to there own , what would i know i havent read the book
 
i must obviously be a troll as i have a varying opinion to the " mass "produced answers given here so liberally .....

mmmmmmm funny that

no worries ...... as you were ...sorry for disturbing you with some observations that dont fit your easy to reach answers

cheers big ears
 
I don't quite see the point in sticking to an 'even portions' approach.
I will have more in a stock which is doing well. Also don't feel obliged to hold something in all sectors.

This is not a recommendation and is probably too discretionary and "without rules" for many.
 

I just sent a response to SKC via p.m.

I don't think you can talk. The only thing you have bought to the table is stupid remarks across nearly every thread i've seen. Your posts contain nothing that can contribute to helping the OP at all. It's easy to criticise others but hard to put your own opinion out there, something you rarely do.

You continually criticise people like Tech/A, even though his system is proven and 1000's of pages have been written on it over at reef, yet when challenged you back down every single time.

What have you ever done, other than post a couple of ramblings in the knife catching thread. Do you just hang around here to annoy people and talk in the chat room through the day. Don't you have anything better to do? Are you even a profitable trader?

There are no "easy to reach answers". This isn't "out of a book". If you want to continue to go with the herd, fine. Just remember that 90% of traders fail, the same ones who follow the herd.

When you have something contructive to say i might take the time to reply to you, otherwise i'll just keep skimming over the wasted space with nunthewiser written to the left of it.
 
nunthewiser said:
lol beats "apples and oranges " as an answer when he cannot come up with something thats not available in the "book "

no offense intended
Click to expand...

Apples and Oranges it was too, You posed a retarded question that didn't deserve an answer.


No. He is not wrong, i said to never average down.

He is not averaging down, he is buying another position based off a new trading plan, and obviously ignoring the shares he has left in the bottom draw to recover in price.

He is not averaging down for the point of averaging down, which is where most people go wrong. They think that their opinion on the stock was right in the first place and actually counts for something, so they buy again hoping that they can "beat the market" becuase their average price is lower. This is what i was describing in my initial post.

This is not what you described, therefore it's comparing apples & oranges. You can't on one hand say that averaging down is doing what you described, but then on the other pose some ridiculous statement that has barely anything to do with the principal statement.

What you described isn't even averaging down in the sence of buying for the sake of lowering your initial cost base to try and recover your losses.
 

LOL

i suggest you do a better search bud ...... i have posted many things of value in these forums actually INCLUDING strategys on free carrys , entrys /exits / trade ideas , stock selections , fundamental analysis ewtc etc etc etc ..... of which it happens to be my original works NOT just this crud you post spewed out of the same old book post after post.

as far as my discussions with tech/a are concerned it is 2 way traffic darl .he criticises me and my strategies and i respond in kind . i have plenty of respect for tech/a,s works but that does not stop me from questioning them, where have i backed down?

as far as being a profitable trader ... yes .. have been for years .but thats either believed or it isnt , i care not. my results tell the tale and there are many i have had corrspondence with over the years that can verify this.... but again , i care not if your good self or any others believe it or not .i have a few trade statements dotted around these threads . BUT not as proof when asked , merely to verify my claims of profits and entrys.. where are yours ?

LOL as far as being part of the herd i can assure you im far from it but you would not know that as you only take whats written in the : book : as the correct way of doing things ..... um so what does that make you ?

i have posted many a constructive comment throught this fine forum and just because i find your posts mere regurgitations of others thoughts does not mean my contributions are negative here .

i do wish you well with your paper trades and maybe one day you will be able to read between the lines and notice theres more to the market other than what you regurgitate .

have a nice day
 
I weight my positions differently also Julia. I will have a small group that are my high conviction positions, that I understand as best can be and think they are either extremely undervalued, will grow considerable, or provide a good dividend and will (probably) not fall over. For example, there were a couple of stocks in March trading well below cash backing and had some good assets. I piled in. Much more discretionary, and not in the book of trading. It's more like 'investing' for me, which I think is what the original poster is also.
 
How does this work in relation to your position size / risk per trade?

Say you have $100K in cash, and you decided that market is bullish so you want to be 80% in shares.
Click to expand...

SKC,
That would depend on the rules of the trading plan itself. I tend to look at trading on two levels; entry/exit/trade management level and then on a position sizing level.

Taking the first, if your trading plan had a specific stop loss based upon a technical level, then yes, the 2% rule, or fixed fractional, will be required.

However, if your trading plan is based upon a percentage decline in the underlying share, then the 2% rule won't be effective as all stocks will be allowed to fall by the same dollar amount anyway.

Example, lets assume you have $100,000 and want to be 100% invested. Your system calls for the initial stop be to be 40% away from entry. Divide your capital into 20 equal parts and each loss is 2% of capital.

The problem with this last example is that if you are trading stocks with high volatility differentials, then you will come unstuck on the lower cap stock because they will move around a lot more.
 
beamstas said:
It's easy to criticise others but hard to put your own opinion out there, something you rarely do.
Click to expand...

Nun does put his opinion out there, i have seen it.

beamstas said:
You continually criticise people like Tech/A, even though his system is proven and 1000's of pages have been written on it over at reef, yet when challenged you back down every single time.
Click to expand...

You should never use another's name to make a point. Let them hash it out between themselves, they are grown men.

beamstas said:
Do you just hang around here to annoy people and talk in the chat room through the day.
Click to expand...

Yes, but he's funny

beamstas said:
Are you even a profitable trader?
Click to expand...

I think he might be.

beamstas said:
If you want to continue to go with the herd, fine.
Click to expand...

How does nun go with the herd? He quite often speaks for himself. I think if anyone, nun has more individual views here than anyone. I respect them, he is quite open about it.

beamstas said:
otherwise i'll just keep skimming over the wasted space with nunthewiser written to the left of it.
Click to expand...

Uhm, it's not wasted to me. I like reading nun's posts.

Anyway, i like some of the discretionary views posted here in relation to capital allocation and position size. One thing that we can take from the books though is "money management". Nun makes no gripes about that

Peace.
 
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