Is it time to reevaluate a classic investing strategy?
Transcript:
JAMES DEPORRE: That one concept that all of these great investors share is that they do not overly diversify. When they have a good idea, they go in big. They really try to press the situation when they have an advantage. Buffett, and O’Neil, and all those others say that diversification is just an excuse for ignorance, that you really need to know your stocks so that you can feel comfortable that you can take an outsized position.
You don’t manage risk by just buying a lot of stocks. You manage risk by really knowing your stocks. And all of the greats have that same strategy, everyone. Soros, Munger, and so on, they all say the same thing about go big when you have an advantage.
JASON MESHNICK: Can I ask you about that? Because I think that’s a really good topic. And I know that Louis, which we’ll get to you in a minute, has written a lot about position sizing. And I know in TheStreet Pro portfolio sort of the average position size is somewhere around 3%. There’s around 30 stocks in the portfolio.
How do you know, Rev, a position is too big? Like how do you press the size? You’ve talked also about trading around a position too. How do you decide how many shares to own of something?
JAMES DEPORRE: Well, I typically am very incremental in the way that I invest. I don’t just make a single buy and a single sale. I’ll start off with a small position. And then I’ll start ramping it up or just watching it or whatever, depending.
The ultimate size– well, the way I think about it is that I diversify by time frame rather than by security. I’m trading the same stocks in multiple time frames. So that’s what protects my– that’s what manages my risk. If I’m only holding a stock for a few days, then my risk is much less than it would be if I’m just holding one big position over a very long period of time.
So my position size can vary from a few hundred shares to several 1,000 shares very fast. And that’s how I manage the risk. And it really goes back to something that George Soros said. And I think this is really the key to all investing. And that is that it’s not whether you’re right or wrong, it’s how much money you make when you’re right and how much you lose when you’re wrong.
So in other words, when you feel you’re right, you got to press and be aggressive, maybe trade more in the short term. And when you’re wrong, then you get out of the way fast and try to minimize that loss as much as possible.
Subscribe |
Earn. Live. Invest. |
TheStreet Pro |
#Investing #Stocks #WallStreet
source
