Position Sizing

PLEASE LIMIT POSITION SIZING TO NO MORE THAN 5% OF YOUR PORTFOLIO. WE RECOMMEND only 1-2% of your total portfolio PER TRADE. 

We cannot stress the importance of position sizing enough.  Too often beginner investors think they’ve done the research on a stock and cannot possibly lose.  They go “all-in,” and a subsequent downturn in the stock can potentially ruin them.  In poker, a player that goes all-in and loses is taken out of the game.  Don’t take yourself out of the game by putting a significant portion of your money into a single stock. 


Diversify

 

You should be investing in a diversified portfolio with best-in-class equities, because if one of your investments doesn’t turn out the way you hoped, you are minimizing your downside risk.  Think of it like this – if you’re trying to win a horse race, you’d want to enter more than one horse into the race.  If your main horse doesn’t get out of the gate like you hoped, you still have multiple horses that are still running.


Technical Analysis

Too often, people will buy at the highs, and sell at the lows, which is the quickest way to lose money in investing.  Seeing a stock jump up in price very quickly causes many young investors to want to buy in, as they think it will continue to rise.  If you aren’t buying dips and are buying hilltops, you are losing out on potential value and limiting the upside of your investments.  At Minotaur, we stress looking at the daily, weekly, and monthly charts before initiating a position.


Creating a set of rules that define your trading guidelines (how much you are willing to lose per trade, when you will take profits and realize gains, how long you plan to be in each trade) is essential to minimizing downside risk.  People will often hold onto their losers for too long, and this will eat away at their account.  Think of it like this – if a stock loses 50% of its value, it needs to increase by 100% just to break even.  It’s better to follow an uptrend than wait for a downtrend.   

Set your Rules and Follow Them


You wouldn’t buy a car without seeing what it looks like, talking to someone about it, and test driving it.  Why should you treat your investments with any less care?  This is your money, and you should know what you’re buying before you buy it.  Knowing whether or not your company is a growth stock or a dividend play is important when putting together the portfolio that fits your investment profile.  If you can’t explain in three bullet points why you’re into a stock long-term, don’t buy it.

Know What You're BuyinG


It’s important to actively set stop limits to ensure that you don’t lose more than intended if a trade doesn’t go your way.  Even if you pick a perfect portfolio, there are black swan events and market crashes that can easily tank your account, and always setting stops will ensure that you can manage your downside while keeping your upside potential. 

Set Your Stops


We often get emails from our members that say “such-and-such is up 5%, do I sell?” or “blank dropped 3% today, is it time to let it go?”  While there are certainly events where this would be the right move, the key is to know your trades ahead of time.  If you’re looking long term, a short-term decline shouldn’t bother you, and if you get out too quickly after a small dip, you can miss a huge run.  Exposure in the stock market allows you to capture big gains as they come, and if you keep hopping in and out of the pool, you’ll miss all the fun.

Don't Panic