I am aware that some recent blogs have been a bit meaty - both for you unfortunate people to read and for me to write (I am not sure who got the worst side of that). Therefore, I will try and keep this shortish and I will jump in the WheelieCopter to keep it high level and stay out of the Weeds.
I have no doubt you are all aware of the AA (The Automobile Association in the old days) - after all, it is one of the Top10 most recognised Brands in the UK. I won’t dwell on what they do, but I will point out a key fact - 90% of their revenues are from Roadside Assistance and therefore incredibly reliable and predictable. The other 10% is from Insurance and I think there is a tad of travel in there somewhere.
Why is Sizing of each Position important?
Yet again, I seem to be addressing what I consider to be a widely misunderstood and often badly undertaken topic. The fact is that I see this as another vital step in controlling risk and keeping the Plane up in the air.
The simple, basic approach is to put the same amount of money into each stock you buy. This sounds great - let’s say you have £12000 and you want to have a portfolio of 12 stocks - then you put £1000 in each. This is an approach many people seem to take and it is beautifully appealing.
I have intended to write this Blog for ages - but keep getting distracted. Luckily the shares have not moved much yet so still seems relevant.
Pets at Home (epic code PETS) is probably my favourite share at the moment and I have very big hopes for it (oh, no, this is gonna be a right turkey then !!) and I have about 4% of my Portfolio in it - and it wouldn’t take a lot to encourage me to buy more.
There is always constant speculation in the media about Interest Rates and you can essentially find an ‘expert’ to support whichever angle you are pushing on a story (Bloomberg, CNBC, hold your heads in shame !!).
Collective wisdom at the moment seems to be that Interest Rates are due to start rising soon from their current, historically unprecedented, extreme low levels - Central Banks around the world have been pursuing ZIRP - Zero Interest Rate Policy (not actually zero but very close).
I started off writing about Position Sizing but got a bit sidetracked due to the inclusion of Bonds within the sizing discussion. I have consequently written my view on Bonds at the moment.
Bonds are an Asset you can buy that pays you a Coupon. You are effectively lending money to the Bond issuer (the borrower) and they pay you back the value of the Bond at the end of the Agreed Life of the Bond (the Maturity) - assuming all goes well and they remain solvent. In addition, you get paid the Coupon every year up to Maturity. In a way you can think of it like a Share with a Dividend - but the Share has the potential to provide a rising dividend payment and Capital Gains. If held to Maturity, a Bond will only pay back the purchase value and you will have received the steady Coupon payment each year.
Why is careful Position Sizing important?
As I see it, appropriate Position Sizing is vital to create a diversified portfolio which provides the overall level of Risk that is acceptable to the individual investor. As I have stated to the point where you are all fed up with it, I see Success in the Stockmarket comes from careful avoidance of mistakes - don’t crash the Plane.
PLEASE NOTE THIS IS NOT A TIP. I AM MERELY OUTLINING WHY I BOUGHT TCM
Those of you Following WheelieDealer on Twitter and/or reading my Twitter Feed on the website homepage, will be aware that I bought some Telit Communications (epic code TCM) earlier this morning, at 230p.
I have been ‘in’ TCM for about 18 months and bought my first chunk at about 86p - something I have learnt from following the Legendary Robbie Burns (Naked Trader) is not to be scared about buying more of a stock even after a good rise. Simply put, if it is still a great company and you can see value in it, then buy.
Ok, it’s really a list of Don’ts:
All are related to Fear and Greed - the classic Behavioural Economics emotions.
If we continue to get difficult weeks (I suspect we will), then I hope these rules can help you stay grounded and avoid costly errors of judgement.
Well, what a difference a few days makes - last week I was verging on suicidal, this week I am relaxed and all is well in the world - apart from nasty winds which has scared me off dinner with a mate and a lovely Pasta bake…….
Anyway, what should I do with my FTSE100 Short Hedge? As you may have picked up from my various recent missives, I hate doing anything in a rush without proper consideration. So, I have been thinking long and hard about this today.
Something to help with long term planning here - I absolutely love this and it is surprising how often it proves useful………and how few people know about it.
72 has an amazing mathematical property - it helps us determine how many years it takes for our Money to double given a specific Growth Rate Percentage (CAGR - Compound Average Growth Rate).
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