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How Investing Imitates Chess (2)
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In The Lesson (Chapter 1 of Garry Kasparov's How Life Imitates Chess) the author describes the spanking he received during the early rounds of his first match with then-champion Anatoly Karpov. He depicts the long grueling match and how his desire for better results led him to focus on how he made his decisions so he could fix whatever was wrong. While he learned lessons on how his opponent played and learned lessons on necessary changes to his own play, the primary lesson learned was the necessity of becoming intimately aware of the methods used to reach his decisions. Though I have been successfully investing for 15 years, the markets gave me a spanking in 2007. In order to turn this around for SLO 2 I need to examine the weaknesses in decision making process that led to those undesirable results. My previous post discussed trading without a strategic theme and how my SLO 2 decisions will be based on three themes. This post discusses decision making with regard to position size. Position size had little or no role in my SLO 1 decision making. I simply sought positions sized at just underneath 10% of the portfolio. This practice does not accommodate real world considerations of industry group diversification, leveraging positions in consideration of prevalent price trends, or systematically harvesting profits. For SLO 2, I will set an objective position size for a given stock using measured expectations for its future gain. Further, this position will be obtained (or exited) via a patient three-unit-buy (or sell) campaign. Each buy (or sell) action will be timed with consideration of market direction, industry group direction, anticipated news releases, and the stock's own price action. Lastly, none of the three strategic themes will be allowed to occupy more than 50% of the portfolio. As of this writing, this portfolio contains a first unit position in the following stocks. Each stock is within the bounds of my three themes and each position size has been thoughtfully determined. In a subsequent post, rationale on each will be presented. Theme #1 Internet-related businesses are cheap. AIRN, PSEM, ALVR, BIDU, KNOT | ||
