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Hi ALL:
I have a very superficial understanding of the term "money management".
It seems in most cases, this term refers to using stop losses.
My way of defining it is a partial and gradual use of one's invested
capital to buy "stuff" (in my case, mostly calls, esp the leaps type).
That is: If you have $10,000 to invest in INTC leaps, you divide it into
several parcels - 2, 3, 4...). The first time you buy the leaps, you use
only one parcel (=$10,000/n, where n is the total number of eventual buys
in that leaps). Subsequently, you buy more leaps with the 2nd parcel etc etc.
When I average down, I don't average down every 2 cents or every 0.0001%
drop in price of the leaps. Based on historical data (the last 2 years or
so), I would determine the "comfort drop zone". Usually, it seems to be
quite profitable to average down every 25% to 50% drop from previous
purchase price.
AND OF COURSE, AS I MENTIONED MANY TIMES, THE BASIC ASSUMPTION FOR
PROFITABILITY OF USING THIS METHOD IS A HEALTHY BULL MARKET AND GOOD CHOICE
OF STOCKS. But who knows when the bull market will end? (Remember my
challenge to you experts - Can anyone be absolutely correct about this? I
don't remember any concrete proof being cited.) My favoite word: "HINDSIGHT".
In the absence of a bear market, I will continue my averaging down
strategy, which I think this year (at least, being a presidential year)
will still make me money.
Also, money management implies I would still have lots of cash to play with
in case some of leaps purchases turn into disasters, which happen fairly
often. That I have. I still have 20% cash reserve, out of a very
substantial portfollio.
Again, let me caution that if this strategy works for me, it may or may not
work for some of you out there...
Remember I always mention about Lichello's "How to Make $1,000,000 in the
Stock Market Automatically!"? I remember receiving a post from one of the
groups many months ago. He pointed out that the book was then on sale for
less than $5 (the paperback edition I bought was about $10 Cdn), and
concluded that it was a worthless book. Maybe to him, but definitely not
to me. I didn't use his method 100%, but used (still use) his concepts as
an overall strategy, which has been working very well in the last 5+ years.
Using my spreadsheet based mostly on his method, I just ran a what-if
scenario, and this is what my spreadsheet says:
Various purchases on the MSFT leaps:
1st purchase price 9.88
2nd purchase price 6.13
3rd purchase price 4.88
4th purchase price 4.13
5th purchase price 3.38
(Note: you can tweak the paremeters of the variable and there can be an
infinite number of sets of purchases...)
Here's the AIM website:
http://www.execpc.com/~oldcat/index.htm
I hope this is more of an objective discussion, without too much
subjectivity and emotionalism. If it's not too much for you, please visit
the website and spend some time browsing the various links, and not just
reject the whole idea outright.
Regards,
Wong
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At 11:40 AM 04/13/2000 -0700, Ira Tunik wrote:
>Money management is only one part of any business. Like any other
business you have to know what you are doing >to be successful. Would you
consider any other store front business a coin toss? I don't know today's
number, >but it used to be only 1 in 10 new business starts was successful.
That is why there are so many employees and >so few successful
entrepreneurs. Having a business and working for wages, sometimes are one
in the same. >People go to school for years to learn how to be doctors,
engineers, etc. They go to graduate business schools >to understand how to
operate a successful business. Why do people figure that if they can put
$20,000 into a >trading account they can get rich and never work again?
The education in this business is just as important as >in any other, and
very few realize that you will pay for that education in one way or
another. When I was >trading on the floor a new market maker would ask,
how long before I can become successful? At that time, the >70s, I said
somewhere between $8000 and $12,000. Today, with the increased volatility,
it could be much much >higher. Good luck with your understanding. Ira.
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