Trading Basics: Evolution of a Trader

A BETTER WAY? PORTFOLIO COMPOSITION

The preceding is what I used over the years, growing my portfolio in good times and downsizing the trade size during bad times. My style changed from buy-and-hold to position to swing to day and back again to buy-and-hold. Did I take the best approach? To answer that question, let us take a closer look at position sizing and money management.

How many stocks should you own? The answer depends on many factors (like age, wealth, investment objective) and your trading style. I show my recommendations in Table 2.3.

Table 2.3 Portfolio Size by Trading Style

Trading Style	Number of Securities to Own
Buy-and-hold	As many as you can comfortably manage. That means 8 to dozens.
Position trader	Core portfolio plus up to a dozen position trades.
Swing trader	Core portfolio plus 6 to 12 stocks for swing trading.
Day trader	Core portfolio plus 2 stocks for day trading that do well when the market moves up and 2 that do best when the market drops.

For people who buy and hold stocks, they trade their holdings infrequently, so the portfolio demands less attention. That means they can hold more securities in their portfolio. For diversification, start with at least eight positions, but that can grow to a dozen or two, maybe even more if you are comfortable holding that many.

If mutual fund managers can hold hundreds of stocks, then us mere mortals can manage 25. I think a good amount is 20, giving 5 percent stakes in each security. That way, if ...