RUNNING OF THE BULLS
smaller allocation – to get back to your target portfolio profile. 2. Watch those stop-loss levels. No one likes to admit defeat. But in investing, it’s important to have a disciplined approach to selling your bad positions – when that bubble pops – and losing the battle. Otherwise, you risk losing the war when a few bad stocks wipe you out altogether. The important – and most difficult – thing is to follow through. If an asset falls to your stop- loss level, sell... no questions asked. And make sure you don’t put a standing market order in at your trailing stop level. You don’t want to tell your broker when you’re going to sell. Make sure that you make it a mental note (or a bright orange sticky note on your monitor) – not one that you tell your broker.
3. Raise some cash. If you think a bubble is forming... sell something and hold onto the world’s best hedge. It’s the least exciting asset known to mankind (how many cocktail party conversations have started with some variation of “Let me tell you about this great cash I have”?). But it’s also one of the safest and one of the easiest to use. And if all other assets collapse in price, cash will be worth the same tomorrow. 4. Don’t bet the ranch to begin with. If you employ basic position sizing from the outset (that is, allocate according to risk... more low-risk, less high-risk), then regardless of what happens to a particular potentially bubbly asset class, a severe correction isn’t going to cause you any kind of catastrophic drawdown in your portfolio. If, for example, you allocate 2% of your investable asset base into cryptos, then even if the entire crypto market is worth zero tomorrow, your maximum loss is 2%. It’s not rocket science, it’s just prudent position sizing. If you think a bubble is forming... sell something and hold onto the world’s best hedge. It’s the least exciting asset known to mankind (how many cocktail party conversations have started with some variation of “Let me tell you about this great cash I have”?).
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