have messed up an incredible number of investing opportunities
by not following proper money management routines. In
the end, it was all Murphy's law in action. The stocks I was
sure about hurt me the most, and the stocks I was afraid of
went up through the roof.
Today through the use of my
Scaling Strategy, I
simulate a mutual fund in my own personal portfolio. I
don't look to make a fortune on one pick, but I don't
lose big either, it's my overall portfolio's growth, and
ability to sleep at night that makes me successful.
most important aspect to your trading, is money management.
Money management is that portion of one's trading system that
tells you how many units of your investment should you put on
a given trade. How much risk should you be willing to take?
picks, I have been experimenting with position sizing for many
years. It was hard for me to accept the idea of
investing 1% per trade. How can anyone make any real
money investing 1% per trade? The one thing I knew was
the fact that I was subjecting myself to a lot of stress by
investing heavily in each position, and I was frozen if a
position went against me, because I was already in too deep.
sizing and buying at the wrong time will be your biggest
mistakes. Buy 1000 shares of a stock and watch it go
down the next day. By the time your stock would come back up,
you will be a much humbler rabbit, ready to sell just to break
even. Then several weeks later, the stock is 10 points higher,
but you are already out of the game.
my first stock buys almost 20 years ago was CompUSA (CPU);
and what a terrible buy it turned out to be. Well, I was following
the stock at the time and saw it fall from $35 to $25. At
the time I liked the company, so I went in and bought 1,000
shares at $25. Two days later, the stock fell to $20 and I
bought another 1,000 (thinking I will just average down a
great buy). A week later, I had accumulated 4,000 shares, and
was almost to
the point of a heart attack. The stock, obviously knowing
I was in deep pain, continued to fall to $13. I was horrified
and disgusted with myself, the stock, and the market in general.
Just to get peace back in my life I had to get out. So, I
sold at $13 and you guessed it, it so happened to be the low.
I took a loss of $20,000 and went into a shock for the next
2 weeks. The odd thing was, two months later the stock was
back at $30.
did I learn from the CPU experience? absolutely
nothing. Following CPU I almost regularly fell
into similar traps by investing large portions of my capital
into what I thought were good companies, but with the lack
of money management and risk control in my approach, these
investments quite often turned into large losses.
could waste your time with a few other good loss stories,
but I want to move on to the important part. The part
when I finally decided that enough was enough and I was not
going to lose money anymore. Now some of you may
argue that losing money has nothing to do with what I want,
and that the market is bigger than me, so how could I say
that I am not going to lose money anymore?
page is not about a psychological pep talk, and even though
I am a believer that you do get what you see in life, the
reason why I finally matured into a winning investor is because
I had to.
After years of losses I no longer had substantial capital
at my disposal, and to put it in simple terms, I had to win.
As someone once said failure was no longer
an option for me.
was about that time when I finally started to understand that
yes, Technical and Fundamental analysis are important, but
without a sound money management incorporated into my investing
I would never be a winner at this game.
for me, I was always good at what I did and working hard never
stopped me, and so I started reading and learning about the
effect of position sizing on my strategy. I knew I had the
best Technical Analysis available, but I needed more than
that. I needed to make sure that regardless of what
the market did or did not do, I would always be successful.