The size of your stock holdings matter when building investment positions in your portfolio. Measure each position sizes by the amount of money and number of shares in each position. You want about the same number of dollars in each position size.
Portfolio Building That Works Money course, Lesson 3 discusses the size of each stock holding in an investment portfolio. Links at the end guide you to related content if you want to learn more.
What’s in this lesson for me?
The lesson teaches that the size of each stock holdings in your portfolio matters. Size must be large enough to make a difference but not so large that downside risks becomes too large.
The number of positions
The discussion of the number of positions in a portfolio goes together with considering the size of each position. Discussion on how many stocks to hold in a portfolio settled on a range of 5 to 30. My preference is 10 or so for a growth portfolio and 20 or so for a more conservative dividend portfolio.
When speculating or bottom fishing an attention demanding high risk portfolio may hold over 30 positions. That very aggressive approach is definitely not for beginners.
In fact, not many experienced investors play this specialized approach well. Until you have significant investing and trading knowledge, stay completely away from any aggressive speculative strategy.
The size of positions
Size matters in stock positions so getting the position size right greatly influences the performance results for your portfolio.
Position size factors to consider
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Difference Making Size
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Affordable Costs
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Buy enough to:
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Change Your Worth
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Min transaction cost per share
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Purchase in board lots
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Round up when necessary
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Difference Making Size
At a minimum buy lots of 100 shares.
Your difference making position size means that with success you must change your worth. Because size matters in stock positions, unless you buy enough shares of a specific company, to materially benefit from a rise in the stock price, don’t buy any. For doing the research and taking the investment risk you must have a good potential pay off. Otherwise why do it?
The need to own large enough position or difference making position sizes, means you have to pass on holding small numbers of shares. As your absolute minimum, think of buying multiples of 100 share lots. Size matters in stock positions because buying large enough lots allows you to have a reasonable cost/share. Like all costs, the transaction cost/share can significantly affect your overall return.
The 100 lot of shares priced above $1.00 is called a board lot. There are techniques of buying smaller amounts, called odd lots, or of buying lower priced shares but we can discuss those topics at another time.
Why this lesson matters
The size matters message in this lesson teaches each stock holding size in your portfolio must be large enough to make a difference but not so large that downside risks becomes too large. That tips the risk odds in your favor.
Key take away points from lesson 3,
Stock holding size matters:
The size of your stock holdings matter in your investment portfolio. The position must be large enough to have a positive effect with growth. Holdings should not be large enough bring disproportional risk into your investment portfolio.
- Each position should be about the same value.
- Position size as well as number of positions are related.
- Size and number of positions vary by approach to markets.
- An investing income approach should have about 20 positions.
- A trading approach often carries fewer, larger positions.
- Speculator’s approach with very few or many more positions.
- Have each position size large enough that growth has portfolio impact.
- Don’t let a disproportionately large position increase downside risks.
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Portfolio Building That Works Money:
Introduction to Building Money Working Portfolios Lesson 1
3 Portfolio success keys Lesson 2
Stock holding size matters Lesson 3
Costs drive portion size Lesson 4
Controlling emotions for investing success Lesson 5
Join exceptional wealth builders Lesson 6
Pyramid portfolio wealth building Lesson 7
Next lesson 4: Costs drive portion size
Have a prosperous investor day!
Bryan
White Top Investor
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