Stock Portfolio Management: Without It Losses Are Inevitable

The Art of Stock Portfolio Management: The Foundation of Success

Updated Dec 2023

Without a solid strategy, Loss becomes an unwelcome companion: Tactical Investor

This guide is designed to enhance your trading skills and strategies. As you evolve as a trader, you may find that some of these suggestions become less relevant. That’s perfectly okay; the key is to discover what works best for you.

A valuable strategy to consider is periodically securing some profits. Execute this strategy with composure and deliberation. Set a profit target, perhaps a third or half of your holdings. Begin with a 20% gain goal, but don’t hesitate to set your sights higher, such as 40% or even more. Sell a third of your shares when your stock achieves a 40% gain. It’s as straightforward as that.

Next, always be prepared for those unexpected mouth-watering opportunities! It’s wise to keep some money aside, just in case. For those who play it safe, make sure to have at least 25% of your investments in cash when the market is looking a bit heated. You’ll know this when the monthly charts show that technical indicators, like the MACD, stochastics, and RSI, are in overbought territory. It’s a good idea to start building up your cash until you’ve got a quarter of your holdings in cold, hard cash. That way, you’ll be ready for anything that comes your way.

Crucial Points To Remember

Divide your investments into equal parts and put the same funds into each. Always keep some money aside for unmissable prospects.
When the market is overheated, conservative investors should aim for a cash reserve accounting for 15% to 25% of their portfolio.
Decide on a profit target of no less than one-third of your investment, with a preferable goal of half. Stick to this target unwaveringly.
Set a clear limit on your losses by determining a stop loss of 20% to 30%, with an average of 25%.
Exit the position immediately when this stop loss is triggered; don’t adjust it with the hope of recovery.
If a particular investment doesn’t seem to pay off, decide whether to stay in or sell and switch to another option.
Set achievable goals and refrain from venturing into options until you have a solid grasp of the market. The exception to this rule is selling cash-secured puts and covered calls.

Portfolio Management is discussed in more detail here.

Fundamental Analysis

He who understands the causes of things will do better in a future state of things than he who merely understands the things themselves.

When everyone interprets the available information similarly, it can diminish any competitive advantage in the market. Fundamentals become valuable when combined with Mass Psychology and Technical Analysis. Metrics like the P/S ratio, Short Interest ratio, Unusual insider activity, and the stock trading well below book value during optimistic outlooks are handy in this context.

To truly thrive in trading, adopting a more nuanced approach is imperative. While fundamentals play a crucial role in understanding the underlying value of an asset, relying solely on them can lead to a somewhat limited perspective. In a world where information is readily available, it is crucial to consider other elements that can contribute to market movements.

The integration of technical analysis is crucial to achieving a more complete picture of market trends and identifying potential trading opportunities. The use of technical indicators and chart patterns, along with an understanding of mass psychology, can help traders better anticipate market movements and make informed decisions.

Moreover, a well-structured portfolio management plan is essential for long-term trading success. This includes diversifying investments, setting clear risk management strategies, and continuously monitoring and adjusting the portfolio as the market evolves.

A combination of fundamentals, technical analysis, and effective portfolio management is essential for traders who seek to gain a true edge in the market. As the famous philosopher Mr Spinoza once said, history has repeatedly demonstrated that the masses are never on the winning side. By utilizing a multifaceted approach, traders can strive to overcome the limitations of a single-dimensional perspective and achieve greater success in their trading endeavours.

Peter Spinoza has some sage words for newbies.

Paraphrasing the wise Philosopher Spinoza born in 1634, “those that try to show others the light are usually sorely in need of this light” or as Johann Wolfgang von Goethe born in 1740 who had the following to say. “I find more and more that it is well to be on the side of the minority since it is always intelligent”. Or William Stanley Jevons born in 1853 “ As a general rule, it is foolish to do just what other people are doing because there are almost sure to be too many people doing the same thing.”

Technical analysis

Technical analysis is the art of discerning market trends by examining charts and statistical data. While it may seem that relying solely on technical analysis can provide an edge in the stock market, it is essential to remember that it is not a foolproof method. The markets are constantly shifting and evolving, and what may have worked in the past may not necessarily be applicable in the present.

That being said, those who can master the technical analysis techniques and adjust their methodologies accordingly can gain a unique perspective and potentially make well-informed trading decisions. But as with any tool, it is crucial to use it with other tools, such as Mass Psychology, rather than relying solely on it.

It is also worth noting that many traders and investors tend to cling to standard settings, failing to recognize that they may not accurately reflect current market conditions. To truly gain an edge, one must be willing to adapt and recalibrate their approach as the market dictates. In this game of financial speculation, it is not enough to observe – one must be able to act on their insights and make calculated confident decisions. Adapt or die; there is no in-between when it comes to trading. This article provides insights into why “mechanical systems fail.”

Effective stock portfolio management can make the difference between winning and losing.

Commercial News: A Tool for Savvy Investors

While news and events can have an immediate impact on the market, they are usually short-lived and have a limited effect in the long term.

News is often dismissed as inconsequential and perceived as stale when it reaches the masses. With widespread access, leveraging news for a competitive edge seems unlikely. Yet, by digging deeper and interpreting the core story, news can be pretty valuable. Commercial news, in particular, can hint at market sentiment and signal potential highs and lows.

Immediate market impacts from the news are typically short-lived, with minimal long-term effects. Therefore, investment decisions should not rely solely on news events but on thorough analysis of the company’s financial health, industry trends, and other pertinent data.

It’s also critical to assess news sources’ credibility and potential biases. Many have agendas that can colour the information they provide. Caution is advised when responding to breaking news, which can be prone to revisions and inaccuracies.

In summary, while news can offer insights, a robust, data-driven approach and a critical evaluation of news sources are essential to informed and successful investment strategies.

Mainstream media focuses on Brainwashing instead of educating.

The mentally challenged are forever clamouring for attention while the wise desperately seek to avoid it, for they know their efforts are best directed towards seeking more knowledge rather than wasting time basking in the light of false glory. Sol Palha

For years, your mind has been wired to accept widely acknowledged truths. At TI, we reject blindly following so-called experts. We see everyone as equal, holding no one in high regard, including ourselves. We believe that no one has all the answers.

However, we deeply respect those who’ve paved the way and those who are making a positive impact. These individuals recognize their limitations and are always eager to learn and grow. In contrast, those craving attention and claiming to know everything merely chase false glory.

The wise steer clear of the spotlight, understanding their time is better spent seeking knowledge. Let’s break free from conventional thinking and embrace a mindset focused on growth.

Mass Psychology & Inductive Thinking

What if the facts presented to you are faulty or, worse yet, fake? Then, no matter how thorough your analysis, the result will be flawed. Sol Palha

Mass psychology can be a veritable weapon in the stock market if wielded with acumen. By comprehending the emotional forces that steer the multitude, one need only bide their time until the hunger reaches a crescendo and then shrewdly shifts their stance.

Conventional contrarian investing, on the other hand, too often rushes to adopt a posture that is antithetical to the herd, resulting in premature entries and a lack of tenacity to endure.

Put in a more straightforward format.

Mass psychology plays a crucial role in the stock market. You can make informed investment choices by understanding the emotions that drive the masses. A smart strategy is to observe and wait until these emotions peak and then consider reversing your position. This approach is more effective than simply taking the opposite stance of the majority, as it requires patience and a clear understanding of the emotional landscape. So, embrace the power of mass psychology and let it guide you towards successful investments.

On the other hand, inductive thinking is when you observe patterns in the market and use these observations to make predictions about future trends. Technical analysis is the perfect example of inductive thinking, observing past market trends and using that information to make predictions. This way, even if your information is not 100% accurate, the patterns and trends you observe will still provide valuable insight into the market.

It’s important to remember that technical analysis should never be used in isolation and must be combined with other analysis methods, such as fundamentals and mass psychology. When all these methods are used together, they provide a comprehensive view of the market and improve your chances of success in trading.

Technical analysis can provide a valuable edge in the market. Still, it should be used with other analysis methods (Mass Psychology, Geopolitical factors, etc) and a well-structured portfolio management plan. With practice, patience and discipline, one can become an expert in this field and succeed in the markets.

Inductive Thinking is both overlooked and under-appreciated

Here you search for the facts and then use these facts that you obtained from your observations to draw a conclusion and determine a possible outcome. Sol Palha

Inductive thinking is a superior way of approaching the stock market. It involves using your intuition and observations to draw conclusions and make predictions. Unlike deductive thinking, which relies on established theories, inductive thinking allows you to see patterns and connections that others may miss. This is because it requires you to be more present at the moment and engage a higher level of your mind.

The best time to keep a trading journal is during a market crash. You will be amazed at the data you can glean from your notes months and years later. Sol Palha

However, many market participants struggle to understand and effectively use inductive thinking. They often fall into the trap of believing they must spend countless hours reading stock trading books and working hard to improve their skills. Instead, they should focus on observing market conditions and keeping a trading journal during volatile times, especially during market crashes. This will allow them to gather valuable insights and make informed decisions.

The key to successful investing is to be cautious when everyone else is confident and vice versa. Understanding mass psychology is critical to this approach, and we can help you fine-tune your understanding of this powerful. We can assist in this arena because mass psychology is integral to our analysis.

What we focus on at the Tactical Investor

“Our attention is centred on the collective behaviour patterns of the general population, known as the mass mindset. This mass mindset holds the key to unlocking the secrets of becoming a successful investor.

We believe that personal growth and success in the stock market are linked. We must learn to crawl before we can walk or run; before we can crawl, we must desire to do so. The same goes for investing. If you seek change and success, you must first have the desire for it and then understand that change requires effort. This effort involves breaking away from old and faulty beliefs and reprogramming your mind to embrace new and effective concepts.

Final thoughts

In an era of ubiquitous information, it’s easy to dismiss news as outdated and widely available. Yet, astute observers can extract meaningful insights by looking beyond the superficial layers of news and understanding the more profound stories. Commercial news sources can also offer a window into market sentiments and potential extremes to watch for, hinting at market peaks and troughs.

The key to success in this information-rich environment is adopting a contrarian stance. As market reactions to news become more exaggerated, it’s common for less seasoned traders to be surprised by sudden, sharp moves in stock prices. Staying ahead requires periodic adjustments to one’s strategy, not a complete overhaul, but fine-tuning to match the dynamic nature of the markets.

Mindset is the cornerstone of such adjustments. Markets tend to overextend in both directions due to increased volatility, and embracing this fact is crucial. The mantra “Adapt or die” rings especially true in trading. There’s no room for half-measures. Recognizing the shortcomings of mechanical systems is vital, as it empowers you to gain a competitive edge over those adhering to generic methodologies.

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