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Craig,
All building block posts attached.
JimG
----- Original Message -----
From: Craig M. Monroe <cmonroe@xxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Wednesday, December 30, 1998 10:32 PM
Subject: Re: Building Blocks - Money Management
>Anyone have a copy of Jim's "Narrowing the Universe" building block post?
Please
>e-mail directly to me to avoid cluttering the list. Thanks.
>Craig
>
>Jim Greening wrote:
>
>> 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
>
>
>
>
Attachment Converted: "c:\eudora\attach\Building Blocks - Charts, Trendlines, & Channels.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks - Direction and Timing.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks - Narrowing the Universe of Potential Stocks.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks - Scans.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks - Targets and Stops.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks - Trend Channels.txt"
Attachment Converted: "c:\eudora\attach\Building Blocks for Stock Trading.txt"
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