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Sean HymanSean Hyman
Post count: 5583

For instance, if you formerly had $500 allocated per stock to a portfolio of 20 stocks (or enough to potentially have 20 stocks), then you’d have $500 per stock times 20 stocks = $10,000

But now, let’s say you have an additional $20,000 you want to add to this $10,000 portfolio. If you go, $20,000 divided by 20, you’d have $1,000 per stock. HOWEVER, if you make your very next purchase at $1000 per stock and it ends up being your next loser, then it was like losing on 2 stocks before. So, to mitigate that and to keep your portfolio a bit more evenly dispersed, you’d want to make it to where that wouldn’t be that exaggerated.

Therefore, you might bump it up to $700 or $750 per new stock added to the portfolio. Gradually ramping it up rather than drastically ramping it up. What you’re trying to do is trying to NOT create a huge hole % wise in the portfolio if one of your larger positions were to end up being a loser. Winning stocks take care of themselves. So it’s the losing side, one has to think about. Hope this helps.