Money and Finance
One of the things I struggle with the most as an investor is knowing how much capital I should put behind each of my investments.
Indeed, the biggest mistakes of my investing career haven't been those where I've lost a little money, it's been the ones where I haven't invested enough in my top ideas.
Case in point, in the summer of 2010, I started researching TradeStation, an online brokerage company here in the U.S. that I thought was significantly undervalued. I did a lot of due diligence, spoke with the CFO, users of the product, etc. and thought the odds were favorable that I'd make money on the investment. It was the best idea I'd had in some time.
Feeling confident in my thesis, I bought some shares for my portfolio.
Fast-forward eight months and TradeStation gets acquired, producing a 60% gain on my investment.
Good news, right?
A 60% gain is nothing to sneeze at, of course, but the problem was I only put 1% of my portfolio behind my idea. While the investment had a positive impact on my returns, it also didn't have a very meaningful impact. It was akin to getting the proverbial "fat pitch" only to lay down a bunt instead of taking a full swing.
What I took from this experience was that you need to invest enough in your best ideas that they can have a meaningful impact on your long-term performance, up to the point where you start to lose sleep over the size of the position.
This will vary by each investor's ability to handle risk. Some investors don't mind putting 20% or 30% behind a single stock while others will blush at a 5% position. Either way, it's important to give your best ideas a chance to make a difference.
How do you approach position sizing? Let me know on Twitter @toddwenning or in the comments section below.
If you're going to be in Omaha for the Berkshire Hathaway meeting on May 2 and would like to meet up, please drop me a line!
Related posts:
Stay patient, stay focused.
Best,
Todd
Subscribe to Clear Eyes Investing by Email
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Money and Finance
Investing in Your Best Ideas
One of the things I struggle with the most as an investor is knowing how much capital I should put behind each of my investments.
Indeed, the biggest mistakes of my investing career haven't been those where I've lost a little money, it's been the ones where I haven't invested enough in my top ideas.
Case in point, in the summer of 2010, I started researching TradeStation, an online brokerage company here in the U.S. that I thought was significantly undervalued. I did a lot of due diligence, spoke with the CFO, users of the product, etc. and thought the odds were favorable that I'd make money on the investment. It was the best idea I'd had in some time.
Feeling confident in my thesis, I bought some shares for my portfolio.
Fast-forward eight months and TradeStation gets acquired, producing a 60% gain on my investment.
Good news, right?
A 60% gain is nothing to sneeze at, of course, but the problem was I only put 1% of my portfolio behind my idea. While the investment had a positive impact on my returns, it also didn't have a very meaningful impact. It was akin to getting the proverbial "fat pitch" only to lay down a bunt instead of taking a full swing.
What I took from this experience was that you need to invest enough in your best ideas that they can have a meaningful impact on your long-term performance, up to the point where you start to lose sleep over the size of the position.
This will vary by each investor's ability to handle risk. Some investors don't mind putting 20% or 30% behind a single stock while others will blush at a 5% position. Either way, it's important to give your best ideas a chance to make a difference.
How do you approach position sizing? Let me know on Twitter @toddwenning or in the comments section below.
If you're going to be in Omaha for the Berkshire Hathaway meeting on May 2 and would like to meet up, please drop me a line!
Related posts:
- Why I sold this dividend stock for a loss
- Make the most of your investing mistakes
- When should you sell a good stock?
Stay patient, stay focused.
Best,
Todd
Subscribe to Clear Eyes Investing by Email
- The Right Way To Approach New Investment Ideas
With most situations in life it pays to go into them expecting the best outcome. No one would take a Hawaiian vacation if they thought it would rain every day during their stay, no one would buy a house if their first thought was all the repairs they'd...
- Why You Should Probably Own Fewer Stocks
I think the average person could know three or four or five companies very well. They could lecture on those three or four or five companies, and if one or two of 'em becomes attractive, they buy 'em...You have to know the story. - Peter...
- A Fine Line Between Patience And Laziness
"Perhaps the strongest feature in his character was prudence, never acting until every circumstance, every consideration was maturely weighed; refraining if he saw a doubt, but, when once decided, going through with his purpose, whatever obstacles opposed."...
- Exploit Your Advantages As An Individual Investor
"Charles Ellis: Turning now to individual investors, do you think that they are at a disadvantage compared with the institutions, because of the latter's huge resources, superior facilities for obtaining information, etc.? Benjamin Graham: On...
- 9 Tips For Becoming A More Patient Investor
Even though the tag-line of the Clear Eyes Investing blog is, "Patience is the individual investor's greatest advantage over the market," patience is a virtue that doesn’t come naturally to me. Maybe I played too much Nintendo as a kid or something,...