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How to size our more speculative positions?

Wednesday, September 3, 2014

I have shared before that it is OK to gamble a bit once in a while. 

I am Chinese and gambling is in my blood. 

It's not my fault that I am born Chinese.

So, I have nothing against speculation per se. 

1. As long as speculators know that what they are doing is speculation, 

2. As long as they are mindful of the possible consequences 


3. As long as they are able to take the losses comfortably if things go wrong, there is nothing really wrong with speculation, is there?

Well, I would say please keep speculative positions small. 

Of course, how small it is would depend on

1. our risk appetite 


2. our ability absorb losses. 

2 to 3% of our portfolio size for some and 10% for others? 

Sounds rather arbitrary, doesn't it?

When a reader asked me for a "formula" to help quantify "small", what did I say?

I told him it would have to be an amount I can recover quickly within a year or less in case of a total loss. 

This measure has always given me peace of mind and he said it is helpful to him. 

So, I thought I should share this.

Of course, if I should have more than one speculative position, the total exposure should not exceed the amount I think I could recover within a year. 

It is a bit like having one or five credit cards from the same bank. 

The credit limit doesn't increase with each additional card issued.

Like with so many things in my life now, it is about avoiding stressful situations where possible and not losing more money than I can recoup in a relatively short time works for me.

Always ask "to what extent can I afford to be completely wrong?"

Once we have the answer to this question, we will know how to size our more speculative positions.

Related posts:
1. Motivations and methods in investing.
2. How to make recovery from losses easier?
3. To be richer, be comfortable with being invested.


apex property investment said...

Wah.. your speculative position is my lifetime earnings...

AK71 said...

Hi Apex,

Well, it is more a trading position than a speculative position but it is not something I am going to get into a debate over. ;)

No one's earned income is less than S$70K in a lifetime here in Singapore. At least I don't think so. You are exaggerating. :)

Lizardo said...

For a person who hardly works, that may well be possible?

But I guess he meant "savings" rather than "earnings".

Garfield75 said...

AK, not bad for pocket money. I got a tough qns for u. I tend to be giving myself a good treat when I make a small profit and forget abt my previous loss . Compartmentalisation of PnL ;)

AK71 said...

Hi Lizardo,

Hmmm... OK, it is possible but the probability is quite low. Even if a person should work for only 10 years in his entire life in Singapore, making just $7k a year or $584 a month would amount to $70k.

So, I think you are right. Apex probably meant life savings but that could be inaccurate too. He probably meant his savings up to this point in time. ;)

AK71 said...

Hi Garfield,

Why shouldn't you give yourself a treat when you make money? OK, I know what you mean. It is because you have accumulated losses.

Well, we shouldn't forget about our accumulated losses. We should still work towards our overall investments turning in a net gain. However, as we do this, we should not become miserable.

Cutting ourselves a bit of slack once in a while especially if there is an occasion to celebrate is not a bad thing. :)

TG69 said...


One trade already so huge not an ordinary traders

AK71 said...

Hi TG,

I shared this on my FB wall:

"It is to give the blog post a bit more perspective. Kelvin is right.

"Someone I know put in $50K in another stock and was losing sleep because he got stuck. $50K was almost all of his cash on hand. So, when someone says I put in $50K in stock "A", it could be OK for that someone but is it OK for us? Pertinent question."

Capricon said...

How did you sell @ 0.8237 ?
Thought a bid is 0.005.

AK71 said...

Hi Capricon,

Mysterious, isn't it? ;p

There is simple explanation. I sold some at 82c and some at 82.5c. :)

Lim Der Shing said...

Like your philosophy ak. I have a policy to not own more than 2% of asset on any fund or bond or stock. Only property is allowed. For speculative bucket which I aim to do better than 10% overall, it is max 1%.

AK71 said...

Hi Der Shing,

From your comment, I can make an educated guess that your portfolio is much larger than mine. ;p

Love the philosophy. ;)

Lim Der Shing said...

AK, beyond a certain number, it is about portfolio performance rather than absolute returns, on that count I think I have a lot to learn from you!

AK71 said...

Hi Der Shing,

Oh, you will soon realise that AK is really more personality than substance. ;p

However, I am happy to share what little I know. :)

AK71 said...

Hi AK, I have been reading your blog almost daily for the last few weeks.
I would like to humbly consult you on noble group. It's price just went up around 30% with high volume.
I can only find some older posting in your blog on noble group. No latest recent article in your blog.
Can please talk to yourself, please.
Thank you

Rather speculative and if your TA is up to scratch, you might make some money from this. It is not something I do much these days.

AK71 said...

NerdLibrarian said...
How do you decide how much of your portfolio to invest into riskier stocks like APTT and how much into supposedly safer stocks like Singtel? Is it based on yield or do you look at other factors?

AK said...
Basically, more speculative positions should be sized smaller.
The actual size should be tied to our ability to suffer setbacks.
Always ask "to what extent can we afford to be completely wrong" and we will have our answer.

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