Booking the
DISTANCE,
the biggest mistake you will make.
If KO trades in a 52 week range of
$53.50-38.30, will buying the stock at
$38.30 and selling it at $53.50 result
in a higher ROI for your overall
portfolio?
Did you know a
research study done in 1991, has shown
that money management explained 91.5%
of the returns earned by money managers
over a ten year period?
In my own
research I have found that position
sizing plays a much larger role than the
actual price paid and received for the
stock. In other words, the percentage
of your capital in each specific
position will have a much larger impact
on your portfolio, than the actual
timing of your buys, and sells.
This is a
difficult concept to grasp for the
average investor, as we are all trained
to focus on booking the DISTANCE, which
is the difference between the actual buy
price to the actual sell price. What
most investors miss is the time factor
and the opportunity cost, or asset
allocation conflict. When your
money is being held in a position in the
"market's waiting room", waiting to make
it to $53.50, what is your opportunity
cost? How much are you losing while
your capital is tied up in KO waiting to
be recognized as a good value at $53.50,
and would your money be better off used
in another position?
Asset Allocation Conflict:
Think of your stock portfolio as
products being assembled on an assembly
line. You have 20 stocks on line being
worked on, but in looking at your system
there are 10 more being shipped to you. You are screaming at your employees to
work faster, but there is not much they
can do to speed up the process. You are
really upset as the 10 new stocks have
arrived at your door, and now your only
choice is to either pass on the new
ones, or sell the old ones before they
are ready. Get the idea of Asset
Allocation Conflict? |
