Piano ManParticipantNovember 6, 2020 at 5:31 PMPost count: 142
I did a search of the forum and didn’t find anything regarding this topic, so here goes…
I understand the whole idea, principle, and method of keeping my LI stock portfolio balanced by investing equal $ amounts in each tranche.
However, regarding the allocation of NEW funds to my LI portfolio and the addition of funds to the existing stocks I own…
If I double the amount of my original funding, so that I now have enough money to:
– double the amount of my new purchases, and also
– shore up my existing positions to double their allocations, as well…
Then, I’m not sure how to keep my portfolio balanced.
Some of my positions are overall ‘in the red’ with some tranches profitable and some not profitable. If the price is lower than my lowest tranche, should I shore up every tranche that is more costly.
Maybe I just need to let the existing stock positions play out as they are and increase the new stock buys I make. But then my portfolio is out of balance.
Direction please.Trey JohnsonParticipantNovember 6, 2020 at 6:06 PMPost count: 23
I feel your pain.
Sean said in the past that around 25 stocks would be his max number. I would take my account and divide by 25 to get how much to invest in each stock then divide by 3 to get the tranche amount.
If you try to invest more in existing positions outside of averaging down points you are increasing your risk in that position.
Personally I would only increase my tranches on new picks but it is your money and invest it so that you can sleep well at night.hvedParticipantNovember 6, 2020 at 6:27 PMPost count: 36
Good question! I missed where Sean mentioned that 25 stocks would be the max so that is good to know. But at this point and time Sean is recommending more cash. So should we be looking at dividing 30-40% of our money by 20-25 stocks then 3 tranches each?Sean HymanKeymasterNovember 6, 2020 at 10:33 PMPost count: 4557
The 25 positions is shared in the video link I share and mention over and over again like a broken record, because how you allocate/divide-up your capital will determine a lot of how successful you are. If you don’t do that piece properly, you won’t do nearly as well as you should. Here’s that link again: https://logicalinvestor.net/members-only/my-complete-investing-system-how-to-allocate-your-money/
Piano Man, what you want to have the ability to do with whatever amount of money you have ($10,000 or $10 million, etc.) is to have your cash able to buy up to 25 positions and of those 25 positions, have it subdivided into 3 tranches for each position.
So, since you have money set aside for present positions, you’d want to keep that same ratio (same dollar amount in each tranche) and no more than 3 tranches in each stock.
With your new cash, your dollar amount can rise because the overall pot of cash you have to work with is larger. But yes, your account will be a bit lopsided until old positions have been sold off and all of the new positions are at the new higher level of dollar allocation per stock and tranche. But all of your new stocks would be at the same new amount of dollar risk per stock and per tranche.
Additionally, never fear having too much cash. Fear having too little. Berkshire Hathaway has $137 billion in cash. Think that keeps Buffett up at night? No. Yet it worries the average investor to death. But why does it not worry him? Because he knows that cash = opportunity and not just opportunity but amazing opportunities at rare values, which can produce far outsized gains in the end. So, it’s okay even, to have some cash left over that’s not allocated because when market crashes happen, there’s more opportunity than you’ll ever have enough cash for, and so there’s always ultimately a way to deploy it all.
Hope this helps.
So, let’s just say that right now you allocate $900 to each stock (3 tranches of $300). But now you can do $3,000 per stock (3 tranches of $1,000 each). You’d start the new picks that come in the future with the new allocation, knowing that every stock you do after that will be at that new dollar amount per stock, and you want to be able to have a portfolio of 20-25 stocks when fully invested at that level. So $3,000 per stock and 25 positions would be a portfolio of $75,000 evenly distributed among 25 stocks (assuming all 3 tranches got filled on every single stock. If it didn’t then it likely meant you were in and out of the stock quicker or you’ve got cash left over for another pick later on).Sean HymanKeymasterNovember 6, 2020 at 10:36 PMPost count: 4557
Trey, there is no pain unless you choose to view it that way. There’s patience. If you view it through the lens of pain, you’ll always be worked up throughout your investing years. Choose patience instead, with a proper estimation of what stocks are likely to do in dips and what they are likely to need as far as length of time in an investment. Once you have that in mind, there is no more pain. It’s simply patience. You’re just waiting for your crop to grow up so you can harvest it. Some crops will grow a little. Some will be bumper crops. Occasionally, a stock or two will fail. But overall, you’ll do well as long as you stick with the system and don’t deviate from it.Trey JohnsonParticipantNovember 7, 2020 at 8:13 AMPost count: 23
It was a bad choice of words, more of a tongue in cheek expression.
It is the management of money, keeping cash for future opportunities while investing wisely in today’s opportunities.
Thanks for all you doPiano ManParticipantNovember 7, 2020 at 10:00 AMPost count: 142
“You’d start the new picks that come in the future with the new allocation, knowing that every stock you do after that will be at that new dollar amount per stock”
Thanks, Sean. This is the point I was wondering about. So, bring the newly added funds ‘on board’ via new purchases.Sean HymanKeymasterNovember 7, 2020 at 10:02 AMPost count: 4557
Trey, glad you didn’t mean it literally.
Piano Man, yep, you got it.Bob SmithParticipantNovember 7, 2020 at 12:17 PMPost count: 120
This seems to be an important theme to manage. It is not only percent allocation to investments but allocation to daily spending like living expenses and vehicles (toys). There are many personal choices. I do not own a muscle car. I do own a turbo diesel ¾ ton pickup truck and a smaller turbo 4-cylindes SUV.
I believe in faithfully following the Logical Investor program following the three tranche ideal. This is the get up every day go to work and follow the boss’ (Sean) instructions to the letter. As my confidence and recourses allow I have increased the dollar amount for new picks as they are issued in the news letter. This is the get up every day go to work and follow the LI plan day job program.
Then there are there things that do not fit the LI model as well; 401K with $SPX500, Dividend Capture, and Options. This stuff is outside the 3-Tranche LI account. The 401K account is separate from but very similar to the 3-Tranche LI program.
Dividend capture and options are different; they are what a plumber would call side jobs. I use a separate account for my side jobs. The amount in my Roth account started out several months ago about equal to about 2 tranches of dollars. So far my Roth account is up 39%. Dividend Capture has worked well. I have not studied or traded options yet.Sean HymanKeymasterNovember 7, 2020 at 5:32 PMPost count: 4557
I like the “side jobs” concept. Glad your Roth is up so much on dividend capturing. Just remember: That works best in an “up” market and we’re likely about to be in a bad “down” market. So you might pause it until that works itself out and turns back into at least a sideways basing market or up-market again.Scott PearcyParticipantNovember 9, 2020 at 12:36 PMPost count: 383
Took me about 7 years, but I am finally at the point in my portfolio that I can do 3 tranches of $1000 each on 25 different stocks…..Overall during that 7 years, the value of my portfolio has more than doubled because of Sean’s teachings……That last testimony is for the folks wondering if this way of investing really works…….:)
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