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I'd like to (publicly) add my thanks as well.
jim
-----Original Message-----
From: Andrew J. Kornberg <kornberg@xxxxxxxxxxxxxxxxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Sunday, December 27, 1998 3:46 PM
Subject: RE: Building Blocks - Money Management
>Hi,
>
>Just want to give Jim Greening a big thank you for all his help, input and
>well thought out responses to the list. The Building Blocks notes are
>fantastic.
>
>Have a great New Year Jim and thanks!
>
>Andrew Kornberg
>
>
>
>>-----Original Message-----
>>From: owner-metastock@xxxxxxxxxxxxx
>>[mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Jim Greening
>>Sent: Monday, 28 December 1998 3:19
>>To: Metastock
>>Subject: Building Blocks - Money Management
>>
>>
>>All
>> Money Management was the last thing I learned as I came to understand
>>the stock market and investment, but, of all the building blocks, it is
>>probably the most important. Money management is nothing more than risk
>>management and, if done properly, should help let you survive the rough
>>spots with enough money left to take advantage of the good times. It's
not
>>complicated, at least the way I do it <G>, and is easy to do.
>> The first thing you have to do minimize risk is to only enter
position
>>when the odds of winning are stacked in your favor. I discussed how I do
>>that last week with my post on the "Direction and Timing" building block.
>>In other words, only enter when the shorter term trend is running in the
>>direction of the longer term trend and when it isn't, stay out. The next
>>thing you have to do is to only select from stocks that have the
>>characteristics that represented winners in the past. I discussed that a
>>few weeks ago in my "Narrowing the Universe" building block post.
>>The final
>>thing you have to do is to decide how much money to risk on each position.
>>In fact, some people say that this last part is their definition of money
>>management.
>> Before I get into specifics on how much money to risk on each
>>position,
>>I want to touch on my general philosophy I believe in diversifying to
>>minimize risk, but I don't believe that more is better. In
>>general, I think
>>5 to 10 positions mostly in different well performing industry groups is
>>enough. If you over diversify you are going to guarantee average
>>performance and that's not what I want. If I'm lucky enough to get a 200%
>>gainer like I did with AOL, I want it to make a meaningful impact on my
>>overall portfolio. In other words, I think its better to put all
>>my eggs in
>>a few baskets and watch those baskets carefully, then to use so
>>many baskets
>>that I can't keep track of them and my performance suffers.
>> For my actual money management I observe the following rules:
>> 1. Each position initially represents 10 to 20% of my portfolio
>>although I may go less than 10% for small cap Christmas Special
>>type stocks.
>> 2. I won't risk more than 3 to 5% of my total portfolio value
on
>>any one position and I'm usually under 3%. This risk is defined as the
>>maximum loss possible for the position. That's based on where my initial
>>stop is placed.
>> 3. No more than 2 positions in any one industry group.
>> That's it, I told you it was simple <G>. However, it is a very
>>powerful concept. It gets you to thinking about the risk involved in each
>>and every position and makes sure that, if followed, you will have enough
>>resources to survive a bad streak. If you are more risk adverse and less
>>profit oriented than I am, you can decrease the position size and
>>the amount
>>at risk. If you can stand more risk, then you can increase the position
>>size and the amount of risk, but I wouldn't go too far in that direction
>>since my model is already pretty risk tolerant. The important thing is to
>>recognize the need for a money management system and get one that you are
>>comfortable with so you can follow it.
>> Any thoughts or comments?
>>
>>JimG
>>
>>
>>
>>
>
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