How to manage fund portiolio?

Discussions about Money Management and Risk Control.
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oem7110
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How to manage fund portiolio?

Post by oem7110 » Sat Jun 14, 2014 1:58 am

Current positions
Stock A : 30%
Stock B : 30%
Stock C : 30%
Cash : 10%

If I sell Stock B, then portfolio would be
Stock A : 30%
??? : 30%
Stock C : 30%
Cash : 10%

I get no idea on what to do with ??? money, there are 3 possible case

[1] Put the money into Cash
Stock A : 30%
Stock C : 30%
Cash : 40%

[2] Re-balancing portfolio
Stock A : 43%
Stock C : 43%
Cash : 14%

[3] Other better suggestions?

Does anyone have any suggestions on what the correct approach should be used?
Thanks in advance for any suggestion

sluggo
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Post by sluggo » Sat Jun 14, 2014 10:04 am

1. Devise three or four different "strategy ideas" about what to do when you sell a security

2. Program each of these strategy ideas into your historical backtesting software (Trading Blox, Wealth-Lab, Tradestation, etc)

3. Run a backtest simulation of each strategy idea, and save the simulation results

4. Compare the simulation results against each other. Do any of them appear good enough / safe enough / risk-averse enough / marketable-to-investors enough, to actually trade in real life with real money? If not, return to step 1 and invent some more strategy ideas to test.

5. Among the strategy ideas that you feel are good enough to trade, choose one. Or, if you find 3 strategy ideas good enough, allocate 1/3 of your capital to each one and trade them all simultaneously.

Here are some strategy ideas

(a) When you sell a stock from the portfolio, use the proceeds to buy a broad-based ETF such as the S&P500 ("SPY") or the Dow Jones ("DIA")

(b) Use a reversal strategy. When you sell a stock from the portfolio, use the proceeds to finance a short position in that stock. You're always long or short, but never out.

(c) When you sell a stock from the portfolio, use the proceeds to buy more of the portfolio stock that shows the biggest loss / smallest gain.

(d) When you sell a stock from the portfolio, use the proceeds to buy more of the portfolio stock that shows the biggest gain / smallest loss.

(e) When you sell a stock from the portfolio, put that money into your Ready Cash account. Every 30 days (or 60, or 90, or ???), rebalance the portfolio and buy more stock with the Ready Cash.

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