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RE: Building Blocks - Money Management



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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
>
>
>
>