Comments on: Position Sizing: How to Limit Risk and Maximize Gains

By: M. Ripley

M. Ripley — Wed, 29 Jul 2009 16:07:32 +0000

I have not read Van K Tharps book. However, based upon a $10,000 portfolio and a 4% limit per stock I would need to have 25 positions. First of all that is too many stocks to manage effectively and with that small amount invested per stock ($400) any gains would be eaten in trading fees.

By: Ephesus

Ephesus — Wed, 29 Jul 2009 14:22:33 +0000

Hi,
Having read Van K Tharps books & articles previously, found your article lacked clarity. When you were talking about 4% or 1% it appeares that you are talking about “as a percent of your portfolio size” which means on a $100,000 portfolio you could have 25 or 100 stocks or a combination somewhere in-between.
When VKT talks about 1% he usually means risk which would be $1000. This would be divided by the difference between the buy price of the stock & the stop loss to give you the number of shares . The number of shares times the share price would provide your trade size.
Many use a 2/20 rule i.e. max 2% risk max 20% trade size.

By: Rock Howard

Rock Howard — Wed, 29 Jul 2009 12:09:24 +0000

This is great advice if you live in a world with no transaction fees. If, on the other hand, you have $10,000 to invest, then, even if you use a discount broker, those recommended $100 to $400 share purchases must overcome a rake that can be as high as 18% in the form of round trip transaction fees. Given this real world perspective, going to the track compares pretty favorably with trying to build a properly diversified portfolio when you only have $10,000 to invest in the stock market.

By: D. Schiffman

D. Schiffman — Wed, 29 Jul 2009 11:25:26 +0000

I think you would be hard pressed to substantiate your claim that the stock market favors the investor. While the “market” may gain 9-11% per year over a very long stretch, an analysis of individual investors (taking into consideration taxes, timing, fees, alternative investments, e.g. real estate) would show something far different, I believe. If you have data other than gross generalities, I and your readers would appreciate it.