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Ocean Man
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I have been an active investor for almost 20 years. My main focus is on high-yield stocks, particularly MLPs, and high-growth oil companies in the Eagle Ford shale. I have a portion of my portfolio allocated to short-term trading, with a focus on over-reactions to company news and directional... More
  • Position Sizing And Averaging Down 69 comments
    Apr 4, 2014 9:27 AM

    These are two of the most important techniques one needs to master in their portfolio. They go hand-in-hand, and doing either improperly can lead to significant losses.

    Bucketing

    I like to bucket my stocks into three categories: safe, semi-safe, and risky.

    Safe stocks: I will buy an oversized position in full with my first buy. I have determined this to be a good entry point, and I don't see the stock falling more than 5-8%. Recent examples of this type are KMI, APU, BRK.B and AVB.

    Risky stocks: I will start small with the intention of adding if it falls further. These have pulled back, but the drop could still be 20-25% more. I like to use what I call the 2-2-4-7 method on these. Initial buy is 2 units, first add is 2 units, second add is 4 units, and last add is 7 units. The 15-unit total will be my max position size, and you don't want to place the last add too early, so target low with it, around that 20-25% further drop level. The first add will be 1/3 of the way to that point (7-8%), and the second add will be 2/3 of the way to that point (14-16%). Recent examples of this type are TNXP and FEYE.

    Semi-safe stocks: The strategy for these falls halfway in between the two buckets above, in two ways. First, I will only target two adds instead of three. I combine the first two buys from the risky bucket so it goes 4-4-7. Second, I see the further drop on these to also be in between the two buckets above, around 12-16%. Again, you target that low with your last add, and that puts your first add halfway there (around 7%). It is important to note that this gives you your 15-unit position down 16%, whereas the risky stocks have only reached 8 units at that point. A recent example of this type would be EXR.

    Position Sizing

    So what's a unit? Well, that's the most important question of all. There are two elements to determining this, and then you need to calculate your adjustment factor.

    The first element is how many positions do you want to have. Some people hold five stocks in equal amounts, some hold ten, and some hold forty of varying amounts. I typically hold 20-30 stocks, but some are higher-conviction than others and some are safer than others, so I like to have some half-positions, some double-positions, and from time to time a triple or much larger position. So I will choose to partition my portfolio into 50 positions, so that some can be dry powder, and some stocks can be double or triple positions.

    The next step is determining the dollar size of your position. Let's say my portfolio is $100,000. You divide that $100,000 by 50 positions, and you have $2,000 per position. Your higher-conviction stocks would then see $4,000 (double position) or $6,000 (triple position) invested. If your portfolio is smaller, say $20,000, you may choose to only have 10 or 20 positions instead, so that you can still invest $1,000 to $2,000 per position.

    Now you have your number of positions, and your dollars per position, but we still haven't defined a unit. This is very important, and is the second element. You don't want your first buy on a risky stock (2 units) to be a full position, or you will have a 7.5X position by the time you get your 15 units. Similarly, you don't want the 15 units to be a full position, or your initial buy will be about a 1/8 position. You can experiment with where you'd like to set this, but I set my 15 units equal to a 3x position. That makes each position 5 units, it puts your initial buy on a risky stock close to a half-position, and it puts your initial buy on a semi-safe stock at 80% of a full position. You would hope that it's a fairly rare occurrence that your picks continue to drop to the max downside you expected, so you shouldn't be hitting those 3x position levels too often.

    Using the example above, with $2,000 per position, your first buy on a risky stock would be $800 and your first buy on a semi-safe stock would be $1,600. You then need to determine your adjustment factor. You will find yourself with more conviction on one risky stock vs. another, or on one semi-safe stock vs. another. You might want to apply a 0.75 factor on the lower-conviction ones and a 1.25 factor on the higher-conviction ones. This will allow you to keep the 2-2-4-7 ratio, and the % drops triggering your next add, but you'll invest more in some names than others as you see fit.

    If you have one of the smaller portfolios discussed above, and have it partitioned into just 10 or 20 positions, you may want to set your 15 units at a 2X position or limit yourself to just one or two risky stocks to manage your risk.

    You then need to determine your conviction level on your safe stocks. Some might be double or triple positions and some might be even larger. This will be influenced by how many stocks you own at the time, how many safe stocks you own vs. semi-safe and risky stocks, how large your semi-safe and risky positions have become, and how many positions you want to keep open as dry powder.

    Examples:

    1) Let's say you only like four safe stocks at the moment, but you'd like safe stocks to make up 40% of your portfolio in the current environment. That would require 20 of your 50 positions, so you'd need a 5X position in each. That may seem like a large allocation, but this is exactly what I do most of the time. The beauty of this, is that an 8% gain in one of these safe stocks will be equivalent to a 40% gain in one of your risky single-position-sized names.

    2) Let's say we've just seen a correction and you think there's a good chance it's over. You may want to adjust so that you have fewer positions devoted to dry powder, and only 20% of your portfolio devoted to safe stocks. You could buy more semi-safe and risky names, increase your adjustment factor, and/or set your 15 units equal to a 4X or 5X position size rather than the 3X size discussed above.

    Additional Thoughts

    Selling: that is a topic for another day, however you should consider reducing your position size, as an alternative to selling it in full, as your conviction and risk outlook changes on each position.

    Changes in Thesis: you do NOT average down as a matter of course, you only do so if your thesis remains intact. If new news comes along that damages your thesis, or reduces your conviction, you do not continue buying on your pre-determined course. If you have to sell for a loss, do it, and make it back on another name. The golden rule is: if you wouldn't make an initial buy here, don't add.

    Impact of a Losing Pick: the point of this exercise is to avoid a bad pick killing your portfolio. You want your stockpicking skills to average out over time. You don't want one bad pick to outweigh six or ten good picks. With this system, a bad pick will have a 3/50ths, or 6%, weight in your portfolio. If a bad pick drops by 40%, the impact to your portfolio would be maxed at a 2.4% loss of total capital (0.06 x 0.40 = 0.024). Even four picks that went horribly wrong would hit you by less than 10%. A lot of people are exposing their portfolio to a lot more downside than that, and that is the purpose of this discussion.

    Good luck, and post questions in the comments section below. This is simply my strategy, I'm sure there are plenty of variations out there, and plenty of successful traders and investors who disagree with my methods completely. But for anyone who has been following my trading style, these may be some helpful ideas about how to manage risk between positions.

Back To Ocean Man's Instablog HomePage »

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Comments (69)
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  • nclsamy
    , contributor
    Comments (111) | Send Message
     
    Bookmarked! Thank you, OM!
    4 Apr, 09:32 AM Reply Like
  • massawe
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    Comments (8) | Send Message
     
    nice OM
    4 Apr, 09:34 AM Reply Like
  • vfc1955
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    Comments (47) | Send Message
     
    Gracias OM
    4 Apr, 09:35 AM Reply Like
  • AndyQ
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    Comments (4) | Send Message
     
    OM, That was very helpful.
    4 Apr, 10:07 AM Reply Like
  • gaklaw
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    Comments (6) | Send Message
     
    Much appreciated!
    4 Apr, 10:07 AM Reply Like
  • Perkins Cove
    , contributor
    Comments (632) | Send Message
     
    Kudos Oberman ! Thank you !
    4 Apr, 10:08 AM Reply Like
  • newbie5
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    Comment (1) | Send Message
     
    Thank you OM. This one really helpful.
    4 Apr, 10:38 AM Reply Like
  • webbersworld
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    Comments (159) | Send Message
     
    Thanks OM... great advice here.
    4 Apr, 10:46 AM Reply Like
  • Perkins Cove
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    Comments (632) | Send Message
     
    Now that I have had time to read this Instablog...I must commend you again. Very clear and concise. Excellent for both the newbie and struggling wannabe. I'm sure I'll be assimilating (and quoting) parts of it in the future.

     

    Once more...a hearty Thank You !
    4 Apr, 11:22 AM Reply Like
  • MMRPM
    , contributor
    Comments (25) | Send Message
     
    Suggested Topics - accessing stock categories\conviction level: safe, semi-safe, and risky. or Options for Dummies
    4 Apr, 11:25 AM Reply Like
  • 683
    , contributor
    Comments (50) | Send Message
     
    Thank you.
    4 Apr, 11:43 AM Reply Like
  • ttrinh17
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    Comment (1) | Send Message
     
    Genius. Thank you for everything you teach us and your contributions to SA!
    4 Apr, 11:59 AM Reply Like
  • allupside
    , contributor
    Comments (44) | Send Message
     
    Thanks OM...I have followed you on many trades with success.
    You seem to be in and out of the same names regularly. Do you use a screening process for prospective picks?
    4 Apr, 12:07 PM Reply Like
  • abujordan
    , contributor
    Comments (113) | Send Message
     
    Very helpful, thank you.
    4 Apr, 12:25 PM Reply Like
  • dmcclain
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    Comments (24) | Send Message
     
    Thanks OM
    4 Apr, 12:33 PM Reply Like
  • Karembeu
    , contributor
    Comments (14) | Send Message
     
    As always, thank you OM for all your help!

     

    This must be a beginner's problem, but I always go full size positions on both my buys and sells. I've started to get better at selling in tiers, especially on big jumps, but still struggle when doing my initial buys because I don't want to miss out on a big surge with only a small initial position. I almost never average down since I don't want to increase my position on a loser, although, from what I've seen, it does help in breaking even sooner as long as the story is unchanged.

     

    Could you comment on averaging up? Is this a no-no for you always? It might be because I dabble in very risky momo stocks that these things fly sometimes and I average up to increase my position to capture some more gains. Haven't looked to see if this helps me, but I've definitely been burned a few times doing this.
    4 Apr, 01:39 PM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » A couple of these questions require long answers which I will try to get to this weekend, but thanks everyone for the great questions and kind comments.
    4 Apr, 01:54 PM Reply Like
  • oneotherfool
    , contributor
    Comments (176) | Send Message
     
    Thank you OM. That's great. Will re-read this weekend to let it sink-in.
    4 Apr, 04:23 PM Reply Like
  • Karembeu
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    Comments (14) | Send Message
     
    Thanks OM; I have the utmost respect for you actually taking the time to respond to us. You're making $$$ hand over fist so I know your time is definitely valuable! :)
    4 Apr, 05:12 PM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » Ok, for the question about how to bucket the stocks, there are many considerations, but here are the main two: past year's trading range and Beta.

     

    If Beta is low and the range is tight, then it is showing some safe characteristics. If Beta is high and the range is wide, it is showing some risky characteristics.

     

    APU - past year's trading range $41 to $50, high over low = 1.2, Beta = 0.3. Safe.

     

    BRK.B - past year's trading range $103 to $119 (when I bought it), high over low = 1.15, Beta = 0.3. Safe.

     

    TNXP - past year's trading range $0.36 to $21, high over low = 58, Beta = 3.4. Risky.
    5 Apr, 10:09 AM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » For the question about me going in and out of the same names, yes, there are a number of stocks that I feel I know very well, and I have a price I think they're worth. I keep them on a watch list, and when they dip significantly below the price I think is fair, I buy them.
    5 Apr, 10:13 AM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » As far as a screening process, I just read the news every day, and based on news and earnings reports, I put stocks on lists of like, don't like, and neutral. When the ones I like dip, or when the market dips, I buy the ones I like. That's oversimplifying, but that's the general idea.
    5 Apr, 10:36 AM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » For the question about averaging up.... There are two main schools of thought in trading - Technical Analysis and Fundamental Analysis, and they are not friends.

     

    TA looks for support levels and chart patterns suggesting a bounce. You're attempting to pick the bottom. If the stock goes down, your thesis was wrong, and you should get out. Many TA adherents worship at the altar of Jesse Livermore, and believe if you were right for a day or two, you are going to stay right for another day or two, and you should add to your winner. That's not what I do. I've never been impressed by the success rates or rationale behind this school of thought.

     

    FA assesses what a stock should be worth based on discounted future earnings / cash flows, growth, buyout potential, dividends, etc. This is what I do. I believe in Benjamin Graham's statement that the market is just wrong sometimes. This provides prices which are both too high and too low at various points in time. I try to take advantage of these. Therefore, if I think a stock is a "good deal" at today's price, I will think it's an even better deal at a lower price.

     

    So you can see why there's debate around averaging down. Traders fall into two different religions with completely opposite views on the subject.
    5 Apr, 10:28 AM Reply Like
  • Antonios Manoussos
    , contributor
    Comments (7) | Send Message
     
    Thank you once more OM! Your valuable advices and stock moves are always a big lesson!
    5 Apr, 10:46 AM Reply Like
  • 683
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    Comments (50) | Send Message
     
    Really interested in how and when you decide to sell. Thanks
    5 Apr, 11:14 AM Reply Like
  • Ocean Man
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    Comments (551) | Send Message
     
    Author’s reply » When to sell involves a lot of considerations, but here are my main ones:

     

    Has the stock that I bought below what I thought was its fair price returned to its fair price? Trade over, thesis gone, wait for the next dip.

     

    Has the stock jumped a little too far too fast / gotten ahead of itself? I sometimes think in terms of annualized gains, and take half or 3/4 of a return to fair price if it happens quickly.

     

    Has my bullish thesis deteriorated at all?

     

    Do I have a better stock available for the money in this position?

     

    Am I happy with my gain? My desire to not lose back my gain may outweigh my desire to get the last little bit.

     

    And then I also weigh in my macro views. If I think the market is getting a little toppy, or looks to pull back, I will reduce my longs even if it's not the perfect sell point on the individual companies, just looking to reduce exposure.
    5 Apr, 11:50 AM Reply Like
  • 683
    , contributor
    Comments (50) | Send Message
     
    Thanks O.M. info above makes a nice check list.
    5 Apr, 07:33 PM Reply Like
  • ls78
    , contributor
    Comments (15) | Send Message
     
    Karembeu pretty much asked a question I was going to ask. I've gotten burned chasing my winners. For example, I bought TNXP at about $8 watched it run up, tripled or so my position on the run up around $14 or so, was sitting pretty and then CRASH.

     

    I've also had times where I've bought a stock, watched it run up, sell out for a nice profit, then buy back in when it dips, but it ends up dipping back to or below my initial price, wiping out gains and sometimes more because I thought I "knew" this stock.

     

    I'm new, obviously, ha.
    6 Apr, 06:31 AM Reply Like
  • MarketPassenger
    , contributor
    Comments (16) | Send Message
     
    Your insight is much appreciated! I will cut & paste this article for further study. I am also interested on the techniques that have got you impeccable timing. It seems your every entry and exit of positions had perfect timing! Thank you for sharing.
    7 Apr, 03:23 AM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
     
    THANK YOU OM!!!
    7 Apr, 11:44 PM Reply Like
  • mattbird
    , contributor
    Comments (18) | Send Message
     
    Thanks OM, this is really great. On risky stocks, is there any point you would add if they have gone up, and you still want to build a full position? Or is the initial buy then the max position in those cases?
    10 Apr, 07:14 AM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » If you were really bullish about a stock, maybe, but usually I look at it this way - being ahead on a half position is not a bad problem to have. And there's always the next dip.
    10 Apr, 08:15 AM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    OM: Thanks for the article.
    I would really appreciate your current thoughts on 2 stocks that quite a few of us fans followed you into.

     

    $FEYE: This long has been a train wreck and most of us are sitting on substantial (unrealized) loss. Can you please advise and provide your current thoughts on this one? Also your current position (are you still holding)?

     

    $BBW: This short has been going in the other direction in spite of current broader market weakness. Is the thesis still in tact?

     

    P.S. I thought it would be easier to discuss the 2 stocks here instead of stock talk.
    We are all ultimately responsible for decisions we make on any position we take. So please don't misunderstand this post as anything other than to bounce off your current thoughts.
    11 Apr, 08:06 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Well, first off, I make a lot of picks, and not all of them end up winners. I have a very good percentage of picks that are winners, but it's not 100%. Among the winners, some take longer than others to show a gain, and some go down first. I'm sure you've seen some of my posts say "for a x% gain in 6 months" or "9 months". What's important about these two, is that the thesis is still intact; FEYE should be higher, and BBW should be lower.

     

    I'll close this answer with a story. Back in 2012, CLCT had fallen from over $16 to $12 (look at a 2-year chart). I liked this stock and thought that 25% pullback was a good point to buy. It proceeded to drop another 25% to $9, and stayed there for a couple of months. I of course averaged down, even announcing that it had become a large position. A number of people on Stocktalks let me hear about it every day, saying Ocean Man had lost his mind, should've used a stop, was going to lose his stack. But my thesis was intact, and I never panicked. Look at my picture. Have you ever seen anyone look so calm and collected underwater?

     

    The stock proceeded to gain 150% including dividends over the next 13 months. I haven't heard too many people question my methods since. But sometimes you have to wait.
    11 Apr, 09:34 PM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
     
    Bravo OM!
    11 Apr, 09:46 PM Reply Like
  • Ranma
    , contributor
    Comments (1841) | Send Message
     
    Brilliant handle!
    3 May, 12:12 PM Reply Like
  • 683
    , contributor
    Comments (50) | Send Message
     
    Patience seems to be the least talked about subject. A lot of people seem to sell to "cut" their losses.
    12 Apr, 03:44 AM Reply Like
  • Perkins Cove
    , contributor
    Comments (632) | Send Message
     
    Oberman,
    Just read through again, both article AND comments. A great tool to recommend to newbies and wannabies....so many of whom have no strategy of their own...and no idea how to build one. I will be referring many people here to this Instablog I'm sure.

     

    A couple of questions: #1. Could you please expound on the use, or not, of stops? I know your general position on this subject (and you probably can guess mine...grin) but I think it would benefit many newer folk to know your reasoning when it comes to using stops.

     

    #2. Going underwater. We know from your avatar you have no trouble breathing down there...but some people do. Is there a trick to it? Does your ease come from knowing your stocks cold, inside and out? Or is it just a faith in your thesis?

     

    Thank you once again for such a clear, concise explanation of your swing strategy, plus the answers to the comments.

     

    Very well done Sir,

     

    PC
    13 Apr, 11:42 AM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Re stops: as detailed above, stops are a component of the TA religion. You have to decide if you want to subscribe to the TA or FA style. I'm not saying the TA style can't be successful, it's just not what I use. In the FA method, you don't sell in reaction to price movement, you sell when news changes your thesis.

     

    Re calm underwater: emotion is the enemy of a successful trader. You need to do whatever it takes to eliminate it in your daily views of market action. If you can't, then this style is not for you. You can't get quick jumps in all of your picks, it just doesn't work that way. You have to go into it thinking that some will take a long time.
    13 Apr, 11:59 AM Reply Like
  • Perkins Cove
    , contributor
    Comments (632) | Send Message
     
    Ah, yes, another reason why this Instablog is a keeper,(in its whole, including comments) well worth using as a reference point for the newer among us.

     

    Good work Oberman !
    13 Apr, 12:29 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Since the day I wrote this blog, the S&P has dropped 3.8%.

     

    The 4 stocks I suggested having large positions in have gone:

     

    APU +1.2%
    AVB +0.2%
    KMI -2.0%
    BRK.B -2.1%
    Average: -0.7%

     

    This is the strategy working.
    13 Apr, 02:38 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Although hedging is a topic for another day, if you follow my Stocktalks you know that I was net short coming into last week. This means that my bet against the S&P (using SPXU) outweighed all of my longs put together.

     

    That means that more than 50% of my holdings went up 3.8% with that S&P drop, while a large chunk of my longs only fell 0.7%. I also had two separate scalps on UVXY for 10% and 15%. In total, it was a very good week while many in the market were suffering large losses.
    13 Apr, 03:40 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Hedging is a complex topic which will take me a long time to write-up properly, but the quick version is that your short bets are just an alternate use of your cash / dry powder while you're waiting for more attractive prices to establish your long positions, while at the same time providing protection to your current longs from a fall in the markets.

     

    If accomplished with decent timing, you'll be taking gains on your short bets as you put that money to work into longs on a dip.

     

    The over-arching idea being: be longer during rallies than you were during pullbacks. It's difficult to achieve, but that, alongside picking outperformers, is the overall goal.
    13 Apr, 03:47 PM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
     
    Great thoughts OM...I followed on your short call last month but closed half my shorts when SPY broke to new highs last week cause I couldn't stand the pain...DOH :( :( :( :( now I reshorted on Friday...i'm such an idiot!
    13 Apr, 10:08 PM Reply Like
  • Ranma
    , contributor
    Comments (1841) | Send Message
     
    OM, would appreciate a detailed write-up on how you choose to go net short or net long! Thanks.
    3 May, 12:15 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Those of you who follow my Stocktalks probably noticed that I sold my four "pillars" as they achieved the 8% gain I said I was looking for:

     

    Sold KMI for a gain of 8.1% in 1 month.
    Sold APU for a gain of 8% in 6 weeks.
    Sold 1/2 of AVB for a gain of 10.7% in 3 months.
    Sold 1/2 of BRK.B for a gain of 12.5% in 2 months.
    Avg: +9.8% in less than 2 months.

     

    Those are some big gains on large positions in a short amount of time, especially considering that the S&P is only up 2.6% year-to-date. That, my friends, is how it's done. If you can outperform the market like that a couple times a year, you'll be very successful.
    22 Apr, 10:43 PM Reply Like
  • wigit5
    , contributor
    Comments (4119) | Send Message
     
    I'm still holding the BRK.B I followed you in at. Not sure if selling half makes sense since it's only an options worth of shares... Any advice on selling pieces of a small position?
    23 Apr, 08:58 AM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » I'd do all or nothing on a small position.
    23 Apr, 09:19 AM Reply Like
  • wigit5
    , contributor
    Comments (4119) | Send Message
     
    Thanks OM thinking of selling out too nice gain on BRK.B id hate for a downturn in the markets to see that one go down since it has no divi..
    23 Apr, 10:04 AM Reply Like
  • Ashraf Eassa
    , contributor
    Comments (9081) | Send Message
     
    Great stuff.
    22 Apr, 10:53 PM Reply Like
  • Scootrd
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    Comments (146) | Send Message
     
    "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.

     

    - Warren Buffett
    22 Apr, 11:09 PM Reply Like
  • Ashraf Eassa
    , contributor
    Comments (9081) | Send Message
     
    That's a pretty restrictive view. I've bought stock where I knew what it was...I'm buying because I intend to flip it for 10-15% over a fairly short timespan. That's not how I do all of my investing, but I've made a lot of money that way.
    22 Apr, 11:19 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Warren's first sentence declares that he's talking about investing. Ashraf's example and most of what I do is trading. The long-term end of trading starts to blur with the short-term end of investing, but for the most part they don't follow the same rules, although they may share some targets.
    23 Apr, 08:40 AM Reply Like
  • mattbird
    , contributor
    Comments (18) | Send Message
     
    OM, you obviously do us a great service just by posting your buys and such, but it would be doubly helpful if you indicated "pillar" positions when you do enter them.
    22 Apr, 11:14 PM Reply Like
  • Stealthe
    , contributor
    Comments (70) | Send Message
     
    Based on your trading style, which chart interval do you use more commonly for your entry point (3 mins?) I am assuming the shorter interval since you seems to be able to get in on the best price. Also, do you rely more on daily or weekly to chart out your thesis.
    22 Apr, 11:28 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Once I decide I want to buy a stock, I'll usually put in a bid below the current price and see if it fills over the next few minutes. I'll watch the real-time charts on Yahoo to see every trade within the 1-minute daily chart, I'll watch the day's range on the Yahoo quote page, and I'll watch the bid and ask change on my broker's website. Then I'll move my bid up when the time is right.

     

    And I use daily for charts longer than 5 days to build a thesis.
    23 Apr, 08:48 AM Reply Like
  • samuel_liu
    , contributor
    Comments (2799) | Send Message
     
    how are trades done in I assume the NASD pink sheets as the trading is not continuous and prices do not go by the cent: Public, OTCMKTS

     

    I find this odd, and I don't understand this so I am reluctant to put in a limit sell order.

     

    Thanks,

     

    Sam
    23 Apr, 09:07 AM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » I don't know, I don't trade pink sheets.
    23 Apr, 09:20 AM Reply Like
  • Ranma
    , contributor
    Comments (1841) | Send Message
     
    Sam, I still consider myself an apprentice trader, but I do trade illiquid OTC stocks from time to time. I use a combination of TA and FA, and trade around to build a core position.

     

    I find the most value in TA to be deciding when to sell in an event driven rally, along with bid/ask. Buying is more difficult as it can always go further down. Both TA and FA have to make sense, and then I look at the bid/ask to confirm.

     

    What is nice about OTC is that you can get a pretty good picture by watching the bids/asks and FA, whereas large stocks have many more players, reasons to buy/sell and tricks to hide their trades.

     

    It's like playing poker at a low limit novice table vs. playing vs. cash rich sharks. Ocean Man is a shark and I am a novice!

     

    In OTC you can just specify your order into the .0001 range so I don't see the problem. You do not want to go by cents as that gives the advantage to market makers. You'll lose an incredible percentage per trade by the bid/ask spread, as sometimes you'll want to just hit the bid.

     

    Edit: I don't mean to say that you will necessarily find OTC easier to trade, as it has its own pitfalls. It has a bad rep for a reason. I just find it sometimes easier to predict the daily direction.
    3 May, 12:41 PM Reply Like
  • Sultan23
    , contributor
    Comments (2) | Send Message
     
    Great learning points here. I thank you for your insight
    23 Apr, 01:43 AM Reply Like
  • 683
    , contributor
    Comments (50) | Send Message
     
    Hey O.M. Just curious if you have a philosophy about taking money out of the market. For example: if you start the year with 5 dollars and you make 10 dollars in gains, do you take that 10 dollars in gains out of the market--or maybe take the original investment of 5 dollars out of the market? I know everyone does something different, but I've heard people say you should take original investment out of market, and "play" with gains.

     

    Your opinion is greatly valued. And thank you very much for this blog.
    23 Apr, 07:23 AM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » I'd just say you want your money invested in what you think has the best chances to go up, doesn't matter if you're ahead or behind on a position.
    23 Apr, 06:49 PM Reply Like
  • 683
    , contributor
    Comments (50) | Send Message
     
    Thank you. Simple enough.
    24 Apr, 02:22 AM Reply Like
  • Toyman317
    , contributor
    Comments (5) | Send Message
     
    Awesome help here. Thanks OM!!!
    23 Apr, 10:07 AM Reply Like
  • KJP712
    , contributor
    Comments (452) | Send Message
     
    Congratulations on making the top ten for Instablogs.A well earned achievement.Keep up the great writing !
    5 May, 08:41 PM Reply Like
  • sheldond
    , contributor
    Comments (1134) | Send Message
     
    This is the 10th time I read this.....gets better every time. I tend to run a concentrated portfolio due to my current portfolio size.

     

    I believe at times this puts me at more risk but like Marks you have to dare to be great.

     

    OM what is the worst a trade ever hurt you and how did you develop your rules?

     

    I read some classics....made a theory....tested it out....and haven't looked back. Is it experience or just FA theory.

     

    Best,

     

    D
    15 May, 10:20 PM Reply Like
  • Ocean Man
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » If I look back at all of the worst trades I ever made, most of the ones that hurt were because I didn't control my position size on them. In contrast, most of the ones that were equally stupid but kept to a controlled position size are completely forgotten.

     

    I'd say my methods are mostly based on experience. There are many facets of the FA side which I don't use, or use much. My system is experience-based with a FA backdrop. Experience helps one keep a wary mindset when approaching each opportunity, knowing what might go wrong, what red flags to look out for, knowing how the stock market likes to do the opposite of the obvious reaction. Then, with that cautious mindset, you search for catalysts and over-reactions with FA glasses.
    16 May, 08:19 AM Reply Like
  • rodh7858
    , contributor
    Comments (138) | Send Message
     
    OM: If you are taking requests on next article/instablog, I would like to suggest how you trade/invest in long/short VIX products ($UVXY vs $SVXY). Thank you in advance.
    20 Jun, 04:14 PM Reply Like
  • bikeeagle1
    , contributor
    Comments (8) | Send Message
     
    Ditto to rodh7858's request. I love the idea of averaging down in SVXY, but of course one never knows which VIX spike is going to result in sufficient backwardation to drag SVXY down to much lower levels prior to the next new uptrend. Perhaps averaging down to a point (say the 300 MA, for example), then stopping out before getting back in at lower levels? Or, conversely, continuing to average all the way down even as SVXY drops 80 or 90% (which will almost certainly happen at some point)?

     

    Thanks in advance.
    24 Nov, 01:27 PM Reply Like
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