What's a large position in a stock for you?

[cuttlefish]

Ignoring futures, derivatives etc. but just for a normal direct share holding what would you consider a large position.

i.e. what is the largest amount of capital you would allocate to a single stock holding. (so I'm not asking about total capital just capital on one holding).

 

[prawn_86]

Im at the top (bottom in value) of the list, hopefully as i age my position sizes will increase

 

[Whiskers]

Ignoring futures, derivatives etc. but just for a normal direct share holding what would you consider a large position.

i.e. what is the largest amount of capital you would allocate to a single stock holding. (so I'm not asking about total capital just capital on one holding).

Oh, if only I could, I would... :

 

[cuttlefish]

Oh, if only I could, I would...

lol - I probably should have worded it as - what is the largest amount that you HAVE allocated to a single position. i.e. not the theory but the facts.

 

[nioka]

The amount doesn't matter much. What matters is the spread. The tighter the spread the bigger the risk as a general rule, although having one or two sound stocks may be safer than a lot of extra spec speccies. At this moment I have thirty different stocks in my portfolio. Over half are speccies. The more speccies the bigger the spread needs to be.

What is a big investment to one can be petty cash to someone else. It doesn't really matter, the principles are the same. The only difference is that if trades are too small then brokerage plays a big part if you trade regularly. You can pretty much ignore brokerage if the trade is over $10,000.

A better question may have been "how much , percentage wise, of your nett worth are you prepared to invest in each stock?"

 

[Sean K]

Should be in % terms IMO.

Over 10% is large for me.

 

[cuttlefish]

The actual dollar value is relevent as well. It can influence the types of investments/trades that are selected and also how the positions are managed - mainly due to liquidity issues.

 

[nioka]

The actual dollar value is relevent as well. It can influence the types of investments/trades that are selected and also how the positions are managed - mainly due to liquidity issues.

Why? If you invest $1,000 you can buy 10 shares @ $100 or 100 @ $10 or 1000 @ $1 or 10,000 @ 10c and for the real speccies 100,000 @ 1c. All you do is change a decimal place everything else stays the same.

(Except that the $100 one has to rise $10 to rise 10% and the specie only has to go up 1 point ($0.001) and you have a 10% increase. How many times do the top stocks change 10% in one day while there are plenty of the penny stocks do. Look after the pennies and the pounds look after themselves.)

 

[prawn_86]

Why? If you invest $1,000 you can buy 10 shares @ $100 or 100 @ $10 or 1000 @ $1 or 10,000 @ 10c and for the real speccies 100,000 @ 1c. All you do is change a decimal place everything else stays the same.

(Except that the $100 one has to rise $10 to rise 10% and the specie only has to go up 1 point ($0.001) and you have a 10% increase. How many times do the top stocks change 10% in one day while there are plenty of the penny stocks do. Look after the pennies and the pounds look after themselves.)

Yes, but if you wanted to buy $200k worth of a small speccie you would move the market depth quite a lot if you purchased the whole lot at once on market, so Cuttlefish has a valid question imho

 

[doogie_goes_off]

I think Kennas is right too, a more useful suggestion would be "as a percentage of your stock holdings, what is a large position" and I would say >10% is large and >15% is almost foolishly large (have found myself in this situation a few times when buying more "expensive" holdings). A large position in cash ie: more than 15% may not be so foolish.

 

[cuttlefish]

Yes, but if you wanted to buy $200k worth of a small speccie you would move the market depth quite a lot if you purchased the whole lot at once on market, so Cuttlefish has a valid question imho

yep thats pretty much it in a nutshell prawn - and thus I thought it might be of interest to get a rough idea where the general market sits in terms of position sizes.

 

[cuttlefish]

and >15% is almost foolishly large

That would depend on your money management strategy and the liquidity and volatility of the underlying stock or instrument.

eg. short term trading a high liquidity, low volatility blue chip stock using tight stops would be a very different situation to long term position trading in a low liquidity volatile small cap.

 

[tech/a]

Entirely dependant on the trade.
I have had 40% of Capital on one trade with exactly the same risk as I have on a trade at the same time with 5%

 

[Whiskers]

I just want to know who these two are.

Them's the sort of friends I want. ... er, need.


PS: eer, well even the two above will do.

 

[NickVC]

Only having just recently entered the share trading arena, I can answer the question quite easily. I have sizeable funds in telstra and in CBA. I have had the telstra and CBA shares for many years, but have never traded them nor even really kept a proper eye on there progress. I am not going to trade these shares. This is because, although the capital gain would be reduced by 50% because I have held them for more than a year, the capital gain on selling out would be substantial given their increase in value over the long term.

I have also held for many years a very small perpetual investment. When I recently thought I would have a go at share trading, I simply sold out the perpetual investment (only about $2750) and thought I would just have some fun trading with that. Once I get more experienced, I intend to take out a margin loan (at a percentage of no more than, say, 40-50% of the CBA and telstra share value). I can then use the margin loan capital to trade.

Anyway, after 2.5 weeks of trading I have a realised capital gain on the $2750 of $400 (largely due to Australian Biodiesel's breakout ).

Anyway, getting way off the point here , so to answer the question and leaving aside my "non-trading" cba and telstra shares, I now have 62.5% of my trading holdings in Empire Oil, 25% in Central Petroleum and 12.5% in Admiralty Resources. Based on the EGO and CTP threads, I hope to make 1000% profits on those shares ...

The relevance of the above may be limited given that I have only just joined the share trading arena, but just thought I'd contribute my

 

[prawn_86]

I just want to know who these two are.

Them's the sort of friends I want. ... er, need.


PS: eer, well even the two above will do.

LOL i agree!

Do you think those top 4 may be able to throw some scraps to a poor student :

 

[Whiskers]

LOL i agree!

Do you think those top 4 may be able to throw some scraps to a poor student :

Well, we can only plead a good cause, eh.

 

[Whiskers]

OK, who was that?

 

[cuttlefish]

Nice to see quite a good number of responses to the poll.

As has been touched upon in the discussion above it'd also be interesting to know to what percentage of trading/investment capital people are willing to put on one position. I've got a limit of 1/3 of capital on any single position and have gone up to this sometimes, but I try generally to keep it under 20% on a single position.

 

[nioka]

Nice to see quite a good number of responses to the poll.

As has been touched upon in the discussion above it'd also be interesting to know to what percentage of trading/investment capital people are willing to put on one position. I've got a limit of 1/3 of capital on any single position and have gone up to this sometimes, but I try generally to keep it under 20% on a single position.

No more than 20% for me. That is enough risk even for a dead dead cert. One of the reasons being that there is usually not much gain to be made in the dead certs as the certainty is usually priced in. In the specs 10% is my max, working on the theory that I expect at least one in ten to make it. Even then I try to have at least a 70% chance of success.