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Makes a lot of sense - thanks.
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
>
>
> An interesting question that I think about when I end up with a big $
> position in a low vol stock....
>
> The quick answer is, no, I don't limit $ size per position. The
realities of
> my brokerage account will limit the $ size of my portfolio, and that
will
> occasionally mean that if I have capital room for two higher vol
positions
> or one lower vol one I will tend to go for the two higher vol
positions for
> diversity reasons. I don't see where the $ value of the stock comes in,
> except where I lose granularity (e.g. on futures contracts my model
might
> want me to invest in 2.289 contracts of something so I'll buy 2).
>
> All stocks are well correlated when markets crash, so to some extent ATR
> differences would go out of the window in extremis. So if all stocks
gapped
> down 10%, then I would lose more dollars than expected on my low vol
long
> positions. Nevertheless, I still wouldn't lose more than 10% on the
whole
> portfolio - and the end result would be the same if I was fully invested
> whether I had 1 position or 20.
>
> The bigger problem is single company event risk. Low vol companies
can be
> bought out at 20% premiums just like high vol ones, so a short on a
lower
> vol company (i.e. a higher $ value) would then cost me more $s. Should I
> care? - probably. But I should also care about issues like
correlation (e.g.
> sector risk concentrations) but with swift portfolio turnover I
don't have
> the time or the software to do it.
>
> Right now the lowest vol stock in my portfolio has a $ position size
3.75
> times that of the highest vol stock.
>
> Andrew
>
> -----Original Message-----
> From: equismetastock@xxxxxxxxxxxxxxx
[mailto:equismetastock@xxxxxxxxxxxxxxx]
> On Behalf Of metastkuser
> Sent: Thursday, June 30, 2005 3:21 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Re: CATASTROPHIC LOSS
>
>
> Andrew,
>
> Thanks for the reply. You wrote: "The control is position sizing. I
size my
> positions such that 4*ATR = 1% of total equity."
>
> Do you also limit the maximum $ amount for a single position?
Perhaps a max
> of 10% of your total equity per position? For example, following your
> position sizing rule above, what if the stock is $5,000 a share?
Would your
> limiting factor be the 1% risk or the maximum $ amount per position?
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
> <andrew_tomlinson@xxxx> wrote:
> >
> > I have certainly found myself with 10% to 15% losses on positions
> overnight.
> > The control is position sizing. I size my positions such that 4*ATR
> = 1% of
> > total equity. Even if I take a larger size loss due to a gapping
> move going
> > past my stop, the limit to the overall size of the position keeps the
> > portfolio out of trouble. These are occasional, annoying losses, but
> they
> > will happen. Price changes in securities markets are not normally
> > distributed, and these are the moves that show it.
> >
> > Andrew
> >
> > -----Original Message-----
> > From: equismetastock@xxxxxxxxxxxxxxx
> [mailto:equismetastock@xxxxxxxxxxxxxxx]
> > On Behalf Of sebastiandanconia
> > Sent: Thursday, June 30, 2005 1:13 PM
> > To: equismetastock@xxxxxxxxxxxxxxx
> > Subject: [EquisMetaStock Group] Re: CATASTROPHIC LOSS
> >
> >
> > My definition of "catastrophic loss" is different from yours. A loss
> > of -15% on a single position in a diversified portfolio isn't
> > serious, IMO. If it was a -15% loss across the board for my whole
> > portfolio, that would be significant. (And, somewhat ironically,
> > during the conditions under which this might occur, good money-
> management
> > wouldn't protect my portfolio from a major loss.)
> >
> > But to answer your questions:
> >
> > 1) I rarely have a large loss on a single position.
> > 2) Good stock selection and understanding of market conditions
> > (favorable or unfavorable) is better protection than puts, position-
> > sizing, stop-losses, etc.
> > 3) Large one-position losses don't have a major long-term impact.
> > 4) When it happens it typically it happens to one position. I try
> > to be out of the market during times when my entire portfolio can
> > take a hit.
> > 5) The psychological effects (I assume you mean "negative") are very
> > intense in the short-term, but quickly fade.
> >
> >
> > Luck,
> >
> > Sebastian
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> > <andysmith_999@xxxx> wrote:
> > > I understand from time to time, a position will take a huge loss.
> > >
> > > Perhaps something happens after-hours and the stock opens 15% lower,
> > > well below the stop. One way to avoid this is to not hold over
> > > earnings. But a plunge can still happen for reasons unrelated to
> > > earnings.
> > >
> > > I have found very little in the money management literature on this
> > > subject, so can a few of the experienced traders please provide some
> > > guidance:
> > >
> > > 1) How often has this kind of catastrophic loss happened to you?
> > >
> > > 2) Are there cost-effective and practical ways to protect against
> > it?
> > > (eg. buying put protection for long stock that is held for a few
> > days
> > > is not practical).
> > >
> > > 3) How have such losses affected the long term return of your
> > portfolio?
> > >
> > > 4) When these catastrophic losses happen, is it isolated to one
> > > position or does it affect all your open positions?
> > >
> > > 5) What were the psychological effects?
> > >
> > > Thanks!
> >
> >
> >
> >
> >
> > Yahoo! Groups Links
>
>
>
>
>
> Yahoo! Groups Links
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