Taleb follows this philosophy. I don't remember what his allocation to this is. What percent do you run with here?
Taleb follows this philosophy. I don't remember what his allocation to this is. What percent do you run with here?
Though you and I might have had our differences in the past - I think you do a remarkable job investing.
In short - I think a minimum of 10% needs to be dedicated to home run plays. If you are younger (than 50) and know what you are doing I might say 20%.
I wouldn't suggest putting the entire "home-run allotment" amount into one stock or fund. A single stock will give you the biggest reward but offer the highest risk of a strike out. Some strike outs basically go under. I'd suggest finding "home run" focused ETFs that also have options available.
It's tough to invest or trade these on the basis of a "trend" too. These days there is just too much volatility and whipsaws. Rather I'd suggest some use of options in the plays - both for the initial purchase as well as managing the position.
On home run positions - I always have a target - and have no shame in taking profits. On a double it isn't unusual for me to sell the position outright and evaluate from there. I've often sold the entire position...and then come back at a later date and repurchased. I'll give you some examples (and you guys can gasp):
A lot is from memory so I may be off a little
In the fall of 2012, I purchased shares of $ACAD. This is one of my best trades ever. Purchase price was $1.80. A few months later $ACAD was trading at $7+. At that time we sold the entire position. Took half the profits and purchased an equal amount of $10 calls. Less than a year later we sold those calls when the share price was around $27. It was a big win.
In 2013, we purchased shares of $DDD. Purchase price was less than $30 and we wound up selling all those shares later that year for about $60. $DDD wound up going up towards $100...and when it began to fall in 2014...I repurchased shares for $47.28 (I know that because I own those shares today). "Siff, you bull####ter, what about trend, what about stop losses?" Very true. In some ways - I felt protected on the position because we already had a double from the year before...and I felt I was holding $30 of profit in the bag. Price kind of whipsawed for a while after this second purchase, I eventually I bought $40 puts when the trend confirmed bear. The puts provided huge protection as $DDD essentially crashed. The puts got closed out sometime last year I think at around $12 (it might have been $15). My trade window shows a pretty big loss on those shares right now (more than $25k)...but I made approx $24k on the initial buy and sell and another $15k on the Puts. So while $DDD is less than half of what I originally purchased it for in 2013 - overall it has been a winner and that is from managing the position and taking the profits on the initial run - staying true to the plan - and no regrets even when it ran far past the $60 where I initially sold it.
My home run positions today are focused on "potential" 5->10->20 years out. They are managed with options - meaning after the initial buy I will purchase puts to hedge in a bear trend and often sell puts to lower cost basis or add to the position in a bull trend. The initial buy takes place as early as possible into a bull trend, with the hope that the initial run on that trend can turn the position into a risk-free one. It takes work and a plan. Even then your best managed position can become busted...and it has happened to me.
As most know I also trade the emini futs and use that as an aggressive home run part of my portfolio. I used to be decent trading the futs. I'm not sure why I'm not so good anymore. My win rate is around 50% for the past year+. There have been times in the past it was above 60%. I know I've lost a lot of my nerve. I also trade in small lots. I also trade FOREX specifically the EUR:USD and the USD:CAD...I have a high win rate on the FOREX but the hours suck.
That's a long winded answer to give you 10%-20%. You need enough allocated to the plays to make the home runs worth your Mai Tai while, but not enough that a run of losers means you work as a Walmart greeter when you're 70 years old.