Exposure

Hello Marty,

I am a new member that just join your service.   I really like what I see, and I think I found exactly what I am looking for in your reports.   The one thing that I feel would be very helpful to me as a new investor is some guidance with the size of exposure that fit different times and cycles.  Is there any technique you use? and can you possibly advise about recommended exposure in the reports?

Thanks

Thank you for joining the service. This is a great question and one that I need to place the answer in the "education center."

The market conditions and our age, goals/objectives will determine our position sizing. In 2022 it was a bear market and it was prudent to play small and quick. Typically, I would start a "probe" position with 1%-2% starter position just get some "feedback" from the market.  The probe position was stopped out often, and that told me it was not the time to be taking much (if any) risk. The market conditions were not ready for large exposure to the stock market in 2022.

The calendar change in 2023 provided and entirely different market and we need to adjust our mindset.  I want to have 8-10 positions at 10%-12.5% exposure to this current market.  That would be a fully invested portfolio.  In order to "win" in this game we must be willing to take risks and play big when we have tailwinds from the market.

I do not like owning more than 10-12 stocks at a time and usually no more than eight. The more stocks wee own the better the chances are of holding a laggard. Holding eight stocks at 12%-13% in size is about right for my portfolio. Although, in 2020 TSLA made up for more than 25% of my portfolio because I had a strong conviction in that stock, and it worked out well.

Remember, we are trading growth stocks, and they move quickly, and can provide large gains in a short period of time. However, they also fall quickly as the average life of a growth stock is 8-24 months. There are very few growth stocks like AAPL AMZN and GOOGL where you can hold for years and years.  Most growth stocks are like shooting stars and they burst on the scene with brilliance and then fade away. One thing we never want to do with growth stocks is hold them for tooling. Once they enter a 4th stage decline they can fall with velocity.

ROKU is a great example of why we have sell rules for growth stocks. I owned this stock during a bull market and thought it would go higher. But, it sliced its 50sma and I sold at $400 per my rules.  I took a small loss on that stock. but, a small loss is better than a large loss! The stock started a stage 4 decline and is now trading at $56.  We cannot become emotionally attached to these growth stocks as they can ruin your portfolio. I cannot stress this point enough! Most growth stocks are like ticking time bombs and will blow up eventually.

I mentioned age goals/objectives as determine factors at the top of this answer. I will be 66 years old in 2023 and not willing to take on as much risk as I would have 20 years ago, and that is why age is a factor. Therefore, my position sizing is likely  different than younger folks.  For me, eight positions at 10% is 80% invested and that is my maximum exposure to the stock market.

I would hope our goals and objectives would be to make as much money in a short period of time as possible. If you are younger then you can take on more risk and have a full portfolio of 8-10 stocks with 10%-13% exposure.

Of course, if you own stock and it is performing well then you may want to add size to it by scaling into that stock.  Although, your add-on buys need to be smaller in size as it raises your cost basis.  For example, If you bought 5% of a stock at $50 and it went up 10% to $55 and you really like the stock and want to add to your position the next buy needs to be 3% at $55.  We buy smaller as we scale into a stock as we do not want to be raising our cost basis too much. If your stock goes to $60 and you still want to add then you make a 2% purchase at $60. Your first buy needs to be the largest. Buying in size at the proper buy point is critical to maximizing your gains. Scaling in to successful stocks is another way to maximize your returns.

I believe we are at the beginning of a new bull market, and it is time to be aggressive. Therefore my trading portfolio has changed to reflect my beliefs. My current trading  portfolio (subject to change at any moment) is as follows:

CROX 14%

ACLS  13%

TSLA  10% (most recent buy)

TDW   12%

ONON  11%

UBER  10%

I am currently holding only six stocks with 70% exposure and the reason why CROX ACLS and TDW are larger components of the portfolio is that I have held them longer and they have appreciated the most. I am still looking to add to this portfolio and would like to buy one more stock when the market pulls back.

I hope this answers your question.  There are many factors and criteria that go into position sizing and it is definitely not a "one size fits all" topic.

Regards,

Marty