Millions of Americans are facing financial hardship due to the COVID-19 pandemic.
The pandemic is surging across the country… and new, more contagious strains of the virus are emerging. So the pain for many will likely continue – at least in the short term.
Now, there is light at the end of the tunnel…
The United States and other countries are ramping up vaccinations to inoculate their citizens. And medical science has developed therapies that treat COVID-19 symptoms much more effectively. So in the long term, things are looking much more positive.
At PBRG, our editors and analysts are long-term bullish. For instance, in March 2020, Daily editor Teeka Tiwari pounded the table and told you to buy cryptos and stocks during last year’s market crashes.
Since then, the S&P 500 is up 45%, and bitcoin has rocketed 382%. Of course, they didn’t get there in a straight line. And we don’t expect stocks or cryptos to rise in a straight line moving forward, either.
Throw in political uncertainty following last week’s chaos on the Capitol… and it’s likely we’ll see volatility in the markets soon. On Monday, we saw the market retreat from its record highs as Congress intensified its calls to remove the president from office.
Today, I’ll share a simple tool you can use to prepare for a pullback in the markets while still positioning yourself to ride stocks higher – regardless of what comes next.
A Pillar of Wealth-Building
At PBRG, risk management is a key pillar of our wealth-building strategy. After all, you can’t build wealth if you’re losing money.
That’s why Daily editor Teeka Tiwari uses several methods to mitigate risk, including stop losses and making asymmetric bets through small position sizes.
When it comes to position sizing, his simple rule of thumb is this…
If an investment hits its stop, your maximum loss should be no more than 2.5–5% of your portfolio’s value.
Here’s how it works…
Let’s say you have $20,000 earmarked for investing in stocks. And you get a tip on a high-quality stock you want to buy at $20 per share with a 20% stop loss. How many shares can you buy?
Well, you first need to figure out how much you’re willing to risk.
Let’s assume it’s 5%… Five percent of $20,000 is $1,000. That means if you get stopped out of the idea, you can afford to lose no more than $1,000.
And if you’re buying the investment at $20 with a 20% stop, that means your stop price is $16 ($20 minus a 20% stop loss of $4).
This means you can buy 250 shares (your $1,000 maximum portfolio risk divided by the $4 stop loss = 250 shares). Your 250 shares at $20 equals $5,000, so a 20% loss would be $1,000.
A Simpler Way to Calculate Risk
Position sizing is one of the most important concepts Teeka learned from his career as a Wall Street executive and hedge-fund manager. As he says:
Position sizing is critical to your success in the markets. By using this simple technique, you’ll never blow up your portfolio with one bad investment.
That’s why each of his recommendations comes with easy-to-follow position-sizing guidelines. These are great… especially if you find yourself wanting to “go big” on speculative ideas like cryptos.
Now, if you want a simpler way to calculate your position sizes, you can try this free position-size calculator from Investment U.
Just enter the ticker symbol of the stock you want to buy… your portfolio’s value… how much you’re willing to risk… and the type of stop you want to use.
The calculator does all the rest…
The example below shows the number of Apple shares an investor could buy with a hypothetical $100,000 portfolio, a position size of 2.5%, and a trailing stop of 20%.
(Please note: This example is not a trade recommendation. It is for educational purposes only.)
Source: Investment U
With Congress pushing to impeach the president again and an unchecked pandemic still raging across the country – it’s inevitable we’ll see more volatility in 2021. So you’ll want to prepare yourself.
A position-size calculator is a simple way to manage your risk during these uncertain times. It’s a must-have tool for every investor. I strongly recommend you bookmark and use it before making your next investment.
Regards,
Chaka Ferguson
Managing Editor, Palm Beach Daily
P.S. Teeka’s robust risk-management strategy is one of the reasons he’s been called America’s No. 1 investor. And he has the track record to back it up…
Since 2016, his flagship Palm Beach Letter has averaged 154% per year. That’s more than 10 times the S&P 500, even while it’s traded at record highs.
Now, Teeka’s putting his track record and reputation on the line once again to reveal what he believes will be the No. 1 investment of the decade.
Teeka tells me that in all his time as a Wall Street exec… and his more than three decades in finance… he’s never been so convinced of an investment’s potential.