Tackle Today: 1/n Portfolio
December 26, 2019
« Dust in the wind. Profitable. »
How’s your Christmas celebration going? Eating, drinking, celebrating with family, and meeting long-time friends? We hope everything is fine on your end.
I know that during the social media times we are living, when people do not talk to each other anymore, sitting around the table with wine, food and nice conversations instead of staring at the luminous screen sharing food pictures is like saying that Bigfoot exists.
In the physical world, however, people still raise questions and questions need answers. Simple ones, not the fistfight they usually get into in the comments section on Twitter, for example.
One topic emerged during the petit comité: losing money in the stock market. About 10 individuals around the table and I was the only one working in the financial markets. Half of them got burned in some get-rich-quick strategy and they were all craving for clarifications.
— Losing money is OK, it’s pretty normal. The good thing about the financial markets is that you can only lose –100% while you can make +200%, +500%, +1000%. The problem is how much there is inside that –100% in relation to the total amount you have.
Silence settled over them. The Bigfoot does exist.
Then I said, “Let me exemplify”.
Imagine you get, for example, 4% of your account value and spread it into as many positions as you can, with the lowest correlation possible and no more than –0.25% loss of your total account value per position. Let’s say you mix in the same portfolio green stocks, 5G, cryptos, and recent IPOs. Now imagine you check the numbers two months from now and, while many positions perished, many others thrived and you are up +10%. What do you think? Is it a bad thing?
Silence settled over them again.
OK, let’s talk about the Bigfoot then.
Chart of the Day
Correlation Heatmap
This simple heat map will tell you how correlated the broad market sectors are with one another. The greener, the more correlated they are.
Video of the day
Trading Concept Check: Portfolio Design
Watch this quick video to help you make sure you understand the important concept of proper portfolio design for all of your trading and investing strategies.
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Cashflow Club 8:30 PM EST
Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
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