Money management is likesex: Everyone does it,
one way or another, but
not many like to talk
about it and some do it better than others.
But there’s a big difference: Sex sites
on the Web proliferate, while sites devoted
to the art and science of money management
are somewhat difficult to find.
There are many, many financial sites
on the Web that let you track a portfolio
of stocks on a glorified watch list. You
enter in your open positions and you get
a snapshot, or better yet a live, real-time
update, of the status of your stocks
based on the site’s most recently available
prices. Some sites, like Fidelity’s,
provide tools that tell you how your
portfolio is allocated among various asset classes such as stocks, mutual funds, bonds and cash.
While such sites get at the idea of money or portfolio management, the overwhelming majority fail to provide the tools required to answer the central question of money management: “When I make a trade, how much do I trade?” (Try and find the topic of money management on the Motley Fool site.) We’ll discuss how to measure and manage trade risk and where to find the tools to help do it in a responsible and profitable manner. The key underlying concept is to limit how much money you are willing to let the market extract from your wallet when you make losing.When any trader makes a decision to buy or sel (short), they must also decide at that time how many shares or contracts to buy or sell — the order form on every brokerage page has a blank spot where the size of the order is specified. The essence of risk management is mak - ing a logical decision about how much to buy or sell when you fill in this blank. This decision determines the risk of the trade. Accept too much risk and you increase the odds that you will go bust; take too little risk and you will not be rewarded in sufficient quantity to beat the transaction costs and the overhead of your efforts. Good money management practice is about finding the sweet spot between these undesirable extremes.
one way or another, but
not many like to talk
about it and some do it better than others.
But there’s a big difference: Sex sites
on the Web proliferate, while sites devoted
to the art and science of money management
are somewhat difficult to find.
There are many, many financial sites
on the Web that let you track a portfolio
of stocks on a glorified watch list. You
enter in your open positions and you get
a snapshot, or better yet a live, real-time
update, of the status of your stocks
based on the site’s most recently available
prices. Some sites, like Fidelity’s,
provide tools that tell you how your
portfolio is allocated among various asset classes such as stocks, mutual funds, bonds and cash.
While such sites get at the idea of money or portfolio management, the overwhelming majority fail to provide the tools required to answer the central question of money management: “When I make a trade, how much do I trade?” (Try and find the topic of money management on the Motley Fool site.) We’ll discuss how to measure and manage trade risk and where to find the tools to help do it in a responsible and profitable manner. The key underlying concept is to limit how much money you are willing to let the market extract from your wallet when you make losing.When any trader makes a decision to buy or sel (short), they must also decide at that time how many shares or contracts to buy or sell — the order form on every brokerage page has a blank spot where the size of the order is specified. The essence of risk management is mak - ing a logical decision about how much to buy or sell when you fill in this blank. This decision determines the risk of the trade. Accept too much risk and you increase the odds that you will go bust; take too little risk and you will not be rewarded in sufficient quantity to beat the transaction costs and the overhead of your efforts. Good money management practice is about finding the sweet spot between these undesirable extremes.
No comments:
Post a Comment