Newbie Portfolio Cash Balance Question

[Ziffster]

I have read all the material and get the gist of the approach, and prior to shifting real money I have used a stock trading simulator to try out the approach.

Applying the basic strategy - assuming an initial investment of $100,000 dividing the investment into lets say 10 lots, and then dividing each lot into thirds so each trade block is $3,333 - very little money would appear to end up actually invested, with most of the money sitting on the sides waiting for downward stock action. Am I missing something?

Could someone who has been following the strategy for a while share what portion of their portfolio is in cash versus the portion actually invested?

I get that this approach takes time to build a portfolio of stocks, but can someone share how long a time frame before one has built a working portfolio and what others have done with the large cash position while the portfolio builds?

When considering portfolio returns, compared to other strategies which tend toward keeping a most of one's investment in cash, does this approach hurt overall portfolio returns (having most of the holding in cash) relative to having more of one's portfolio actually invested?

Thank YOU.

[GregT]

One suggestion is for the plays you're comfortable investing in, set alerts for the upper end of the suggested entry or slightly above and when they trigger, then place your GTC order at desired price. Then set alerts for the 2nd lot, new plays, etc. but continue executing orders when new alerts get triggered regardless if 2nd or 3rd lot gets filled.

[DrSven]

I too was wondering if the basic tactic would lead to a high cash position, assuming that deploying 2nd lots is less likely than 1st lots and so on. I found this topic already discussed here in the forum. This thread answered my question:
viewtopic.php?f=2&t=138

As I am only 6 months with TI, I cannot provide data you asked for. However, I recommend browsing this forum as I found a lot of questions already discussed.

[Eric]

I'll take another whack at it and see if I can explain it better than I did in the above referenced thread...

Taking a quick look at the May Market Update Portfolios Update I counted 24 open positions (including secondary candidates) in the main "Trend Portfolio": 33 thirds have been deployed in those 24 positions, approximately 8 of the 33 thirds have been closed out for profit leaving 25 thirds open on 24 positions.

If you really want to limit the number of positions you hold I would about double the dollars per position:
Example 1: If you're firm on only holding 10 positions in a $100k portfolio I would deploy $6,667 per "third" so that only about 1 third of your total portfolio is reserved for screamin' deals.

Example 2: If you're planning to hold 40 positions it would work out to $833 per third but I would still "round-up" by a lot and deploy somewhere between $1,000 and $1,500 per third.

If you're going to hold 40-60 positions (all Trend plus all higher-Risk plus ETFs) I would deploy something like 1.5%-2% of your portfolio balance per third (this is mostly what I do).

[nicolas]

My strategy so far has been to open positions in almost all plays that trade to the buy target, with relatively small lot sizes. I’ve scaled up the number of positions before increasing the lot size.

The current breakdown is:

Trend Portfolio
22 positions: 16 with 1 lot, 6 with 2 lots, that’s 1.3 lot per position

Medium to High Risk (stocks only, no options)
10 positions: 8 with 1 lot, 2 with 2 lots, that’s 1.2 lot per position

AI Trend Trader
10 positions: 5 with 1 lot, 4 with 2 lots, 1 with 3 lots, that’s 1.6 lot per position

High Risk plays on AI update
10 positions: 7 with 1 lot, 1 with 2 lots, 2 with 3 lots, that’s 1.5 lot per position

So, if you’ve already decided how many positions you plan to open, you could consider that you’ll end up deploying on average 1.5 lot for each position, and calculate your lot size from that.

Hope this helps.

[Ziffster]

Taking a quick look at the May Market Update Portfolios Update I counted 24 open positions (including secondary candidates) in the main "Trend Portfolio": 33 thirds have been deployed in those 24 positions, approximately 8 of the 33 thirds have been closed out for profit leaving 25 thirds open on 24 positions.

So with 25 thirds invested in 24 positions, if we the overall portfolio was $100,000 divided into 24 positions then 25 out of a possible 72 thirds would be invested, leaving roughly $65,000 in cash and $35,000 currently invested.

Considering many hedge funds right now have large portions (up to 50%) sitting as cash I am not necessarily opposed to this approach, but just wondering how it effects returns?

It definitely reduces risk to be largely in a cash position and does place one in a good position to bottom feed major market corrections which make for huge opportunities.

[Eric]

Taking a quick look at the May Market Update Portfolios Update I counted 24 open positions (including secondary candidates) in the main "Trend Portfolio": 33 thirds have been deployed in those 24 positions, approximately 8 of the 33 thirds have been closed out for profit leaving 25 thirds open on 24 positions.

So with 25 thirds invested in 24 positions, if we the overall portfolio was $100,000 divided into 24 positions then 25 out of a possible 72 thirds would be invested, leaving roughly $65,000 in cash and $35,000 currently invested.

Considering many hedge funds right now have large portions (up to 50%) sitting as cash I am not necessarily opposed to this approach, but just wondering how it effects returns?

It definitely reduces risk to be largely in a cash position and does place one in a good position to bottom feed major market corrections which make for huge opportunities.

It seems you ignored the rest of my post... I'm saying don't do that, instead divide your money into 12 lots of $8333 ($2777 per third), then deploy that money into 24 positions...$2777x25=$69,444 which would get you about 70% invested instead of only getting you 35% invested. Of course today's update tells us Sol is working on some alternate deployment strategy.

I like using 1.5% of portfolio size as a base deployment amount (66 possible deployments) and don't care if it's in 20 companies or 50. Using 1.5% deployments means I won't overload on any specific company...no stock will be more than about 4.5% of your portfolio at the time of purchase. That in turn means you won't lose your entire portfolio if that stock turns out to be a turd that drops 90% just after you buy it. I may deviate from 1.5% and deploy 2%-2.5% if I missed the first deployment and I'm starting out at the second fill price (i.e. if I had no position and wanted to buy into BWXT today). If the NASDAQ were to shed 1,000 points or the DOW shed 2,000+ points I might deploy 2%-3% on TQQQ or UDOW.

[sc2021]

Taking a quick look at the May Market Update Portfolios Update I counted 24 open positions (including secondary candidates) in the main "Trend Portfolio": 33 thirds have been deployed in those 24 positions, approximately 8 of the 33 thirds have been closed out for profit leaving 25 thirds open on 24 positions.

So with 25 thirds invested in 24 positions, if we the overall portfolio was $100,000 divided into 24 positions then 25 out of a possible 72 thirds would be invested, leaving roughly $65,000 in cash and $35,000 currently invested.

Considering many hedge funds right now have large portions (up to 50%) sitting as cash I am not necessarily opposed to this approach, but just wondering how it effects returns?

It definitely reduces risk to be largely in a cash position and does place one in a good position to bottom feed major market corrections which make for huge opportunities.

It seems you ignored the rest of my post... I'm saying don't do that, instead divide your money into 12 lots of $8333 ($2777 per third), then deploy that money into 24 positions...$2777x25=$69,444 which would get you about 70% invested instead of only getting you 35% invested. Of course today's update tells us Sol is working on some alternate deployment strategy.

I like using 1.5% of portfolio size as a base deployment amount (66 possible deployments) and don't care if it's in 20 companies or 50. Using 1.5% deployments means I won't overload on any specific company...no stock will be more than about 4.5% of your portfolio at the time of purchase. That in turn means you won't lose your entire portfolio if that stock turns out to be a turd that drops 90% just after you buy it. I may deviate from 1.5% and deploy 2%-2.5% if I missed the first deployment and I'm starting out at the second fill price (i.e. if I had no position and wanted to buy into BWXT today). If the NASDAQ were to shed 1,000 points or the DOW shed 2,000+ points I might deploy 2%-3% on TQQQ or UDOW.

@Eric - I like the 1.5% approach. Do you take into consideration the type of play (e.g., Low risk, high risk, etc) or do you just buy whatever hits the target range?

[Eric]

@Eric - I like the 1.5% approach. Do you take into consideration the type of play (e.g., Low risk, high risk, etc) or do you just buy whatever hits the target range?

I don't adjust entries according to the heading of the play (in the MU or AI services), I just generally buy whatever stocks hit the target (I only partake in a select few of the ETF plays). I do generally deploy smaller amounts on the options (0.5%-0.75%). If adjusting deployment size makes you feel good I would absolutely recommend doing so. You could deploy 1% on RED stock plays and 1.5% on GREEN stock plays and 2% on GREEN ETFs with 1%-1.5% on RED ETFs or whatever you're comfortable with. Whatever you do, it won't be chiseled in stone--you can adjust your strategy while you evolve as in investor/trader (I started with 1% deployments and felt I had too much cash on hand after a year or more so I increased it to 1.5%). I would suggest you pick a guideline/strategy and follow it 80% of the time or better and try it out for 6-18 months...then adjust if needed.

I usually trade manually, meaning I don't generally have standing orders to buy XYZ when it hits Sol's target of $$.¢¢. Sometimes I get busy and can't pay attention to the market for a week (or a month)...so that's when I miss entries and that's when I might increase my deployment size if I can take my first fill at a second-fill price (or better). I do have different "portfolios" with different account balances and different investment objectives so my lot sizes in the account where I do MU plays are larger that the lot sizes in my AI portfolio/account.

[DrSven]

I have questions closely related to this topic:
Does the risk-reward-ratio change from 1st to 2nd to 3rd lot in a given play?

Assuming I have one lot to deploy and need to decide between the following possibilities (let's assume they have the same risk category, e.g. primary candidate in green, and all of them hit the corresponding buy price):
A: deploy the lot as a 1st lot in a new play
B: deploy it as 2nd lot in a play that I am already invested in with a 1st lot from earlier
C: deploy it as 2nd lot in a play that I am not invested in yet (because I missed deploying 1st lot for whatever reason)
Is there a general advice on what to choose?

Thanks.

[bpcw]

I have sold all my 3x geared ETFs over the last few days to free up cash for a potential correction but also de-risk as these are high risk trades, only 3 x Nasdaq is an official play but I had far more than the normal lot sizes, the others were all commodities.

This is my strategy in de-risking/raising cash in the latter stages of an uptrend, I cannot know the exact top but if stocks continue upwards I have plenty in individual stock plays.