Portfolio Management
The other day I was reviewing my portfolio and I realized that it’s
been a great year so far. I took a quick look at where we started the year and so far the markets in general have been kind to the smart (or lucky) investor.
The Dow Jones closed at 13,577, up 8.8%, the NASDAQ and the S&P are
also up by 9.4% and 7.2% this year.
The commodities market is also chugging along – gold is now up to
$667 an oz.
With positive moves like this, it got me thinking about my next move.
What to buy, when to buy? It was then that it dawned on me. When I
put on a trade, for a short term move, I always add in a stop order – or
at least I mentally set a stop order.Strangely enough, and I’m sure you are no different, I’ve not been updating my stop orders. Some of my investments have moved away from my initial levels, and I have exposed myself to serious risk – and the potential to see my hard earned profits disappear.
The famous wall street saying goes “In the market, bears make money,
bulls make money, but pigs get slaughtered.” I tell you, I’ve been a little piggy lately.
I think it’s time to do a little portfolio review. Maybe take some
profits – maybe not. At the very least we need to adjust our stop loss
orders. Now the million dollar question is where do you place your stop
loss?
I have seen every suggestion for stop loss placement, from the simple,
to the complex. Investor’s Business Daily has a rule that everyone
exit a trade if it moves against you by 7% or 8%. I know an investor who
uses an ATR (average true range) calculation which roughly tracks
volatility and plans exits at the bottom of the range. Yet another investor
I know limits his loss to 5% of his portfolio value, but he is very wealthy and keeps a small number of investments in his portfolio.
Truly these methods are a dime a dozen. The important thing is that
you pick one and stick to it. Even if it is only mental!
Category: Stocks
