1 Stock - How to Play it? - Margin Implications - Need Help!

[sprasad03]

Hey guys,

This is my situation, basically I made a mistake by dedicating ~50% to one stock from a cost basis POV. I bought the stock at 26 (400 shares), 31 (400), 31.37 (375). Its currently range bound between 26.90-28.50. Quarter Results come mid-April. My issue is I am profitable on the 1st position because it never really dips lower than 26.90 and is always back up, but the other 2 positions are always around a loss of 900-~1400 depending on the price. I can wait for quarter results and I do expect them to succeed but since I have so much dedicated to it, its very risky. I was wondering how should I play this? I do not want to get a house call, and all my other stocks are doing well. I actually wish I had the available cash to purchase another stock but I cant add more money at this time. Should I wait for quarter results, take a loss and buy another stock, or ?

[mhc]

You should determine if you are posting in the right place by reading:

http://www.bogleheads.org/wiki/Boglehea ... philosophy

[pkcrafter]

Welcome, this forum focuses on investing, not speculating.

This is my situation, basically I made a mistake by dedicating ~50% to one stock from a cost basis POV.

From our POV, it is a huge mistake to place 50% of assets into one stock from any POV--you are taking uncompensated risk.

Paul

[sprasad03]

First every investment in equities is a form of speculating, if it wasn't then we would all be millionaires wouldn't we?

Second, I understand I made a mistake, I am asking for a strategy to get out with minimal impact.

[momar]

Sell it.

[midareff]

Sell it.

[Taylor Larimore]

Hey guys,
This is my situation, basically I made a mistake by dedicating ~50% to one stock from a cost basis POV. I bought the stock at 26 (400 shares), 31 (400), 31.37 (375). Its currently range bound between 26.90-28.50. Quarter Results come mid-April. My issue is I am profitable on the 1st position because it never really dips lower than 26.90 and is always back up, but the other 2 positions are always around a loss of 900-~1400 depending on the price. I can wait for quarter results and I do expect them to succeed but since I have so much dedicated to it, its very risky. I was wondering how should I play this? I do not want to get a house call, and all my other stocks are doing well. I actually wish I had the available cash to purchase another stock but I cant add more money at this time. Should I wait for quarter results, take a loss and buy another stock, or ?

sprasad03:

Welcome to the Bogleheads Forum!

Many of us on this forum started out making the same mistakes you are now making. It happened to me. I started investing in individual stocks before learning the benefits of index mutual funds

I urge you to ignore Wall Street's self-serving advice to speculate in individual stocks. Instead, listen to the Boglehead experienced investor/posters above. One of them, Paul Crafter, wrote an online book. I encourage you to read it:

Roadmap for Investing Success

"The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time experienced money managers is, how should I say, ludicrous and absurd." -- Eric Tyson, author of Mutual Funds for Dummies

You should also know that index funds outperform the majority of experienced money mangers.

Best wishes.
Taylor

[flossy21]

Sell half now. Sell the other half after the report.

It's the best of both worlds.

[Stonebr]

First every investment in equities is a form of speculating, if it wasn't then we would all be millionaires wouldn't we?

Most of us on Bogleheads don't see it this way. For what it's worth, many posters on this forum are millionaires and didn't get there by speculating in individual stocks. We all made errors like yours in the past. It's the tuition we paid to the investment school of hard knocks. The purpose of this forum is to lower the high cost of this tuition for new investors.

I suggest that you do some reading in the wiki pages and the recommended reading list, form a long term investment plan, sell your individual stocks, and follow your plan. With persistence you will someday see that an error of a few $thousand is a cheap lesson.

A good place to start your education might be to research what some of the great investors of the past have said about the difference between speculation and investment -- chapter 1 of Benjamin Graham's The Intelligent Investor -- comes to mind.

Oh, and welcome to the forum.

[Grt2bOutdoors]

First every investment in equities is a form of speculating, if it wasn't then we would all be millionaires wouldn't we?

Second, I understand I made a mistake, I am asking for a strategy to get out with minimal impact.

To echo the others, many here are millionaires. But that isn't the point, the real point is shown below by example - investors are in it for the long haul, if you want to be rich overnight - develop a patent that will be in high demand, own a business, win the Lottery, marry rich.

A speculator puts 50% of their capital on the line in hopes of a quick score.
That means you are banking all of your capital on just 1 of 2 seeds coming out and providing you with enough fruit to live and prosper over a lifetime.

An investor plants a number of seeds, let's say 10, and hope for 1 or 2 big old oak trees over a lifetime, 3 smaller trees and 2 small trees, the remainder fail to launch. That's 6 out of 10, a winning percentage in anyone's book. In that situation, an investor can afford to speculate with a small percentage of overall wealth, a speculator has no wealth.

The investor says: cut your losses (sell the losing positions), ride the winners. One should never bear any more risk then they can stand to lose. You have no more cash, therefore selling and buying now, will create a wash sale. If the earnings fail to materialize or even if they do, a market sell-off can still create a margin call situation - the position of strength is to sell those losing positions NOW!! The fastest way to deplete one's capital is to use significant leverage.

[NateH]

logon to your broker.
click - 'sell all'

use proceeds to buy 2 books recommended on bogleheads.org

this is far cheaper tuition than many of us paid.

[sprasad03]

Thanks guys,

If I have learned anything in life, you can be good at anything, some will fail, some will win. Its all about what you specialize and learn. The mistake I made happened a while ago, I have been profitable in majority of positions in individual stocks, however like you stated, i made a mistake overweighing myself into 1 position. This was the 2nd time I did this, and vowed to never do it again. I appreciate the advice, I am currently reading Peter Lynch "One Up on all Wall Street", not that its the end all be all, but I do believe you only invest in what you know. So far I have been good and only invest in what I follow daily and know about. I have been trying to expand my knowledge, so I can diversify my portfolio into more sectors.

I find this forum interesting, and actually will begin to read up on this philosophy as well. I think a combo of the strategies would serve me well, I do love day trading and I'm lucky enough to be able to be at a computer to follow all the news. Not that my stocks are all short term, some are long and some are short.

In a nut shell, to prevent having a realized loss of a magnitude, what sounds like a better strategy? This is honestly my thought process, all my positions are doing well, except the one I poured 50% into (stupid), but I did it. If I can sell, I can put that money into another position instead of banking everything on the quarter results (which literally this stock is waiting for) and also make money from the time quarter results come? My issue is I know long term the stock will pass $31 but I dont like my risk position and based on my past performance I can better utilize the funds if available. The reason why this is important is I am trading on Margin, obviously buying power is tied up and if it goes down could initiate a house call.

1. Sell the Profitable Lot @ 26 (had it for the longest)? Hold the 2 ($31) lots until quarter results. I do believe long term this stock will pass $31 but if it doesn't, im in for a treat.
2. Take the loss of the highest lot, hold the 2 lowest lots
3. Sell the 2 highest lots (losses) and keep the lowest lot.
4. Hold it for long term until all lots are protfitable



Just for background, some of you might say its risky, but this account is particularly for aggressive growth. I already have a 401K, IRA, and Broker-Managed Account where its index funds, mutual, stocks, bonds. Those accounts are more valuable than this one. This account is for me to be aggressive with high risk, not saying I would ever bet the house, but just wanted to highlight the purpose.

[M1garand30064]

Thanks guys,

If I have learned anything in life, you can be good at anything, some will fail, some will win. Its all about what you specialize and learn. The mistake I made happened a while ago, I have been profitable in majority of positions in individual stocks, however like you stated, i made a mistake overweighing myself into 1 position. This was the 2nd time I did this, and vowed to never do it again. I appreciate the advice, I am currently reading Peter Lynch "One Up on all Wall Street", not that its the end all be all, but I do believe you only invest in what you know. So far I have been good and only invest in what I follow daily and know about. I have been trying to expand my knowledge, so I can diversify my portfolio into more sectors.

I find this forum interesting, and actually will begin to read up on this philosophy as well. I think a combo of the strategies would serve me well, I do love day trading and I'm lucky enough to be able to be at a computer to follow all the news. Not that my stocks are all short term, some are long and some are short.

In a nut shell, to prevent having a realized loss of a magnitude, what sounds like a better strategy? This is honestly my thought process, all my positions are doing well, except the one I poured 50% into (stupid), but I did it. If I can sell, I can put that money into another position instead of banking everything on the quarter results (which literally this stock is waiting for) and also make money from the time quarter results come? My issue is I know long term the stock will pass $31 but I dont like my risk position and based on my past performance I can better utilize the funds if available. The reason why this is important is I am trading on Margin, obviously buying power is tied up and if it goes down could initiate a house call.

1. Sell the Profitable Lot @ 26 (had it for the longest)? Hold the 2 ($31) lots until quarter results. I do believe long term this stock will pass $31 but if it doesn't, im in for a treat.
2. Take the loss of the highest lot, hold the 2 lowest lots
3. Sell the 2 highest lots (losses) and keep the lowest lot.
4. Hold it for long term until all lots are protfitable



Just for background, some of you might say its risky, but this account is particularly for aggressive growth. I already have a 401K, IRA, and Broker-Managed Account where its index funds, mutual, stocks, bonds. Those accounts are more valuable than this one. This account is for me to be aggressive with high risk, not saying I would ever bet the house, but just wanted to highlight the purpose.

The purpose of taking risk is to increase expected returns. There is a point where that no longer becomes the case, and you are well into that territory with that strategy. This is called uncompensated risk (http://whitecoatinvestor.com/uncompensated-risk/). I dont see the benefit of taking risk that is not reasonably assured of giving me increased returns.

Also, you may believe that stock will sell at $31 again, but there is no way to know for sure. I'm sure there are plenty of people out there that though their GM, WaMu, Enron, Woolworth, Kodak, etc. etc. stock would recover but things just kept getting worse. All businesses have life cycles. Dont get caught heavily invested at the end of one.

[YDNAL]

This is my situation, basically I made a mistake by dedicating ~50% to one stock from a cost basis POV. I bought the stock at 26 (400 shares), 31 (400), 31.37 (375). Its currently range bound between 26.90-28.50.

Taking what you said at face value, you bought $34,563.75 and can lose -$1,076.25 to -$2,956.25.

Code: Select all

Buy   Price       Amount       Sell Potential 1      Sell Potential 2   
400     26.00     10,400.00    26.9    10,760.00     28.50     11,400.00
400     31.00     12,400.00    26.9    10,760.00     28.50     11,400.00
375     31.37     11,763.75    26.9    10,087.50     28.50     10,687.50
1175    29.42     34,563.75    26.9    31,607.50     28.50     33,487.50
                                 Loss  (2,956.25)         Loss (1,076.25)

1. Sell today and buy an Index Fund - like Vanguard Total Stock Market VTSAX.
https://personal.vanguard.com/us/funds/ ... IntExt=INT
2. Consider yourself lucky it wasn't much worse.
3. Read some of these books (link).

[livesoft]

First every investment in equities is a form of speculating, if it wasn't then we would all be millionaires wouldn't we?

Uh, I thought we were all millionaires or even multi-millionaires.

[nisiprius]

sprasad03, read William J. Bernstein's essay, The 15-Stock Diversification Myth. In part:

One of the most dangerous investment chestnuts is the idea that you can successfully diversify your portfolio with a relatively small number of stocks, the magic number usually being about 15....

...To be blunt, if you think that you can do an adequate job of minimizing portfolio risk with 15 or 30 stocks, then you are imperiling your financial future and the future of those who depend on you. The reason is simple: There are critically important dimensions of portfolio risk beyond standard deviation. The most important is so-called Terminal Wealth Dispersion (TWD). In other words, it is quite possible (in fact, as we shall soon see, quite easy) to put together a 15-stock or 30-stock portfolio with a very low SD, but whose lousy returns will put you in the poorhouse.

He then presents some compelling data, which he explains:

The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market....

....So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.

[protagonist]

Hi there, spras.

1. Taylor Larrimore's advice above is excellent.
2. We don't know your situation. If you are young enough, love to gamble, have more money than you know what to do with, and have a stable job that pays you up the wazoo (eg you have very little to lose), perhaps putting 50% of your assets on one stock isn't such a horrible thing. It's big stakes but the long-term risks for you may not be so great. I mean this....I'm not being sarcastic. Most people are not in that situation, and even those who are, most would be skittish going to the roulette table and placing half their life assets on black hoping to double them, even with a beautiful starlet fixated on their every move. You might make a killing, but the house holds the better odds.
3. If you are not in the situation and not the type of person described in #2, I would recommend selling and doing something safer with half your money eg...diversify. This is a good place to learn about how,and a good time to do it, since the market is peaking and you haven't lost too much yet. You need to put cognitive dissonance aside, be logical and say "if I had the opportunity to buy this stock with 50% of my money today, with what I know today, would I do so?" If the answer is no, then you shouldn't own it. Sell it. Good luck.

[Watty]

In a nut shell, to prevent having a realized loss of a magnitude, what sounds like a better strategy?

You already have the loss and nothing you can do now will change that.

You are in basically the same situation as someone at a roulette table that has lost a lot of their chips but they have not cashed out and gone home yet. The fact that they have not cashed out does not change the fact that they have lost.

The best strategy is to sell the stock down to less than 5% of your portfolio and then deduct the capital loss on your taxes. If you have some other stocks with capital gains you can sell them too to let the capital gains and losses offset each other as much as possible. You can then write off $3,000 in the capital losses on your taxes against ordinary each year and carry the remainder forward until you have used it all up.

[bottlecap]

I appreciate the advice, I am currently reading Peter Lynch "One Up on all Wall Street", not that its the end all be all, but I do believe you only invest in what you know. So far I have been good and only invest in what I follow daily and know about. I have been trying to expand my knowledge, so I can diversify my portfolio into more sectors.

Boy, if investing in what you knew worked, we would all be multi-millionaires, wouldn't we? I buy all sorts of good stuff from companies I know are great every day.

I can't help you with this situation, because I've never even contemplated being in it, even though 14 years ago I did trade stocks for a time. It seems you have to decide: Is this an aggressive account that is worth a small amount or not? If not, sell. If so, what's the harm in losing it all on a gamble?

You've been blessed to find this site. Explore it, as it will challenge all of your currently-held beliefs. Maybe it'll even change your mind.

Although I do think stock funds are risky, I fundamentally disagree that they are speculative. They are not commodities that produce nothing, they are shares of companies that grow and become more valuable over time (although perhaps not on the schedule we'd like). While you can't completely eliminate all forms of risk, if you own a broad index of stocks, you can diversify out risks that what would otherwise be considered naked speculation.

Good luck,

JT

[Ranger]

If the stock has liquid options, you could use this strategy.

http://www.cboe.com/Strategies/EquityOp ... Part1.aspx
http://www.cboe.com/Strategies/pdf/StockRepair.pdf

[rr2]

Just for background, some of you might say its risky, but this account is particularly for aggressive growth. I already have a 401K, IRA, and Broker-Managed Account where its index funds, mutual, stocks, bonds. Those accounts are more valuable than this one. This account is for me to be aggressive with high risk, not saying I would ever bet the house, but just wanted to highlight the purpose.

sprasad,

Welcome to the forum.

If this is your fun/play account, then the standard Boglehead recommendation is that this be less than 5% of your total investments which include the above mentioned accounts such as 401K, IRA, taxable accounts etc.

Assume that you do not currently own this stock. Would you spend 50% of your assets to buy this stock?

Other than that, I have no advice to give. Personally, I have never bought or owned an individual stock directly.

[bertie wooster]

You appear to be posting on the incorrect forum for your style of investing and the advice you seek.

[Blister]

If you know it will go to 31 wait and sell it then. Or if this is a good investment why sell at all. If this is a speculation then gamble.

[grabiner]

Mentally, sell all the lots, and all of your other investments. Don't actually place an order with your broker; just view your brokerage account as if it had $35,000 of cash rather than this stock in it (minus any margin balance), and your IRA and 401(k) were also all in cash.

Now, make an investment plan from scratch. If your portfolio is $100,000, what is the best way to invest $100,000 in cash?

That is also the best way to invest a portfolio that is currently worth $100,000 (except for any tax considerations from selling, and your capital gains and losses are small). If you invest your $100,000 the same way I invested my $100,000, then your returns will be the same as mine, independent of what you held last year.

You'll probably conclude that you want to sell most, if not all, of the single stock; putting more than 5% of your portfolio in one stock increases the risk significantly. If you do sell only some of the single stock, you should sell the lots with a loss for tax reasons (and you should learn the tax reasons before making other investments in taxable brokerage accounts).

[Snowjob]

I use margin
I use individual stocks
I do run a relatively concentrated portfolio

That said, remember im just some voice on the internet speaking here, but just hear me out here.

back of the envelope math,
-50% of your longs (1 large position) are underwater by about 5-8%
-50% (the rest of your longs) are "doing well" (I'll guess thats up at least 5-8%)
net you're probably sitting on unrealized gains over all -- If your worried about a margin call when you have a net realized gain on a portfolio basis, YOU HAVE WAY TO MUCH LEVERAGE!!!

I would proceed to do the following:
Sell down to a reasonable margin:equity level and do so by selling the over weight position. Even if you sell 2/3rds of your position here at a loss thats not much of a loss relative to your net worth... You'll get to write it off on your taxes, you'll get to sleep at night instead of worrying about a call. You can re-evaluate your portfolio later after you have had the weekend to think things over. Remember margin can be very dangerous and I personally would not recomend anywhere close the the amount it seems your using-- ever.

[HomerJ]

Hey guys,

This is my situation, basically I made a mistake by dedicating ~50% to one stock from a cost basis POV. I bought the stock at 26 (400 shares), 31 (400), 31.37 (375). Its currently range bound between 26.90-28.50. Quarter Results come mid-April. My issue is I am profitable on the 1st position because it never really dips lower than 26.90 and is always back up, but the other 2 positions are always around a loss of 900-~1400 depending on the price. I can wait for quarter results and I do expect them to succeed but since I have so much dedicated to it, its very risky. I was wondering how should I play this? I do not want to get a house call, and all my other stocks are doing well. I actually wish I had the available cash to purchase another stock but I cant add more money at this time. Should I wait for quarter results, take a loss and buy another stock, or ?

How did you find this website? Investing on margin, no cash on hand, taking large risks.... None of these are the Boglehead way...

We're basically a group of boring, live-below-your-means, avoid debt, buy-and-hold low cost index funds, diversify across multiple asset-types, and stay-the-course during downturns people.

Sell the stock, take your losses. Do not buy another stock. You are NOT fast enough to out-trade the professional firms just because you sit in front of a computer all day. I worked for a High Frequency Trading Firm. Our computers made trades in the tens of microseconds... The market is up what 15% this year? You think you're skilled because you've made some money in a rising market?

I traded during the dot-com boom (1999)... I used to trade Lucent in a range too... until it dropped 95%. I learned my lesson. Many "systems" make 5%, 10%, 5%, 8%, 10%, then boom, you make one mistake and you lose 70% (and you probably doubled down 2-3 times on the way down). The solution is not to think, "Oh, I just made that one mistake.. I'll do better next time"... Instead you have to understand that your "system" is flawed, and has a huge chance of not working in the long-run.

I highly recommend "The Four Pillars of Investing" if you want to learn more about our boring old ways.

Go to Vegas if you want some excitement. Investing should be boring. I only check my numbers once a month, and I rarely make any changes.

And yes, I have a million dollars... At 43. Because of this site.

I didn't panic during the last crash, stayed the course, invested in broad market low-cost index funds.

Because of the lessons I learned on this site.

[EyeYield]

Wow, you just got a lot of really good advice. Nothing to add, except I wish I got the above advice 30 - 40 years ago.

As far as "Playing", some BH's think 5% is ok for playing, I'm of the belief that 1% is ok.

only invest in what you know

Peter Lynch was on to something when he said this, but that was before the internet and High Frequency trading as it's done today.

My opinion is that now everybody knows the same thing, so it's not as easy as when Mr. Lynch was managing Magellan.

So I would revise his statement to "only invest (or in your case, play) in what you know, that nobody else knows", otherwise Index and play with 1-5%.

[roymeo]

If I have learned anything in life, you can be good at anything, some will fail, some will win. Its all about what you specialize and learn.

Have you learned how things you knew at one point in time turn out to be other than you believed at a later point in time?

It's hard to answer your 1,2,3,4 thinking about this as someone with a lot of margin who's trying to avoid realized losses...that's going to be such a different context from anything I'd ever want to be involved with, I'll just say "Good Luck".

[sprasad03]

Interesting posts nonethless. I understand this is a forum based on a certain philosophy. I do want to clear up somethings though because seems the convo may have strayed. It seems like hindsight 20/20 on some these responses.

1. Diversified Portfolio - We all agree this works, 5% rule per responses, I may not agree with the percentage but I do agree with the strategy. Over time, i have decreased each position size % as my balance has grown. Luckily for the most part I have been profitable, you may say its luck, I may say its my analysis on that specific company. Lets agree to disagree.
2. The 50% basis was a mistake a while ago, I have held on to it, because yes its a speculative stock, and I did not want to take a loss at the time I am only down (Unrealized as of today 2G - no where close to margin call). If it passes quarter results, it will surpass $31, no doubt, if it doesn't it would probably drop to low $20s.
3. Different Philosophies, Different People, there is no such thing that one works better than other. I think we can all agree there multiple strategies that do work for certain people and some that don't. At the end of the day its all about application, it just seems from the responses, confidence is reeming that its almost a guarantee I will make money by doing the strategy suggested. Maybe thats how I am interpreting it.

Trading Margin has risks, but that is in my risk tolerance. Currently, it has amplified my profits to this date but I have not been trading too long on it, so anything can happen. I am willing to take losses, obviously I can mitigate risk with Stops, Trailing Stops, etc.

Anyways, I actually will read up on the strategy suggested from this forum. Personally, I like to to read as many different strategies by people who have done it and see how they handled situations. If anything, I will incorporate your guys feedback and the suggested methods, will I follow to a T, probably not, but doesn't mean it won't help me investing.

But anyways thank you for the feedback. Look forward to reading more on this forum and implementing some of the techniques learned here.


Just for clarification, I am not including 401K, IRA, Brokerage Account into the Stock Position. I like to think of them as separate, they are all currently managed by my broker. This is the only account managed by me, so far it has been decent.

[rr2]

Sprasad -- Something seems out of place. You obviously appear to be a person very savvy with investing as can be deduced from day trading, using margins, stock research etc. At the same time your 401k, IRA, and brokerage account are managed by a broker.

[z3r0c00l]

3. Different Philosophies, Different People, there is no such thing that one works better than other. I think we can all agree there multiple strategies that do work for certain people and some that don't.

There is such thing as one thing better than the other! There is a mathematically optimal choice to make based on a careful analysis of all data on hand. There are wild gambles that one can take for a chance at making a ton of money, but they involve unacceptable (and largely uncompensated) risk. Most strategies don't work very well at all. Stock picking and market timing is one of them. If you leave this thread thinking that stock picking is just another winning option, you should reconsider what people are saying.

If stock picking worked, the "experts" (authors, tv show personalities, anyone else) would have made a fortune by now. They make all of their money off selling books and tv shows, and precious little from investing. That is extremely telling.

I don't know if you got the 5% rule. You should only speculate and pick stocks with 5% of your money. The rest should be invested conventionally. That does not mean 5% in any given stock and then 5% in another. Having said this, I would only do so if you need it to keep you from getting bored. I put 100% of my money in conventional, safe investments. To me, fun is a $250 dividend every month. Different strokes... but that does not mean there is more than one winning strategy.

[neurosphere]

I don't know if you got the 5% rule. You should only speculate and pick stocks with 5% of your money. The rest should be invested conventionally. That does not mean 5% in any given stock and then 5% in another. Having said this, I would only do so if you need it to keep you from getting bored. I put 100% of my money in conventional, safe investments. To me, fun is a $250 dividend every month. Different strokes... but that does not mean there is more than one winning strategy.

The problem I have with this is that 5% never stays 5%. Suppose you have a play account worth 5% of your portfolio. Suppose it tanks and is now 1%? I'll bet a lot of people might be tempted to "re-fund" that play account and convince themselves they can do better next time. This is likely true if the account initially went UP a lot, and then down. How many times have we heard "investors" say "aha, I know what I did wrong and I won't do that again".

I think the 5% rule is a little dangerous. The "TRUE" bogleheads (whatever that is) don't need a 5% rule to determine what percentage of their account they are allowed to "play" with. Just like a true Boglehead knows whether buying $100/year in lottery tickets is a tremendous waste of money which detracts from a long-term financial goal, or whether it merely very cheap entertainment well worth the price. That's because it depends on the details of the individual situation.

Likewise the 5% rule. For someone with a great plan, saving well for the future or having met their "number" and then some, 5% may be cheap entertainment, or a hobby, etc. which will not derail a long term favorable outcome. But for another, giving "permission" for that 5% can lead to bad things. Perhaps like a "gateway" drug (for those who believe that exists). Or another imperfect analogy: would one tell a compulsive gambler that it's ok to gamble, just limit your losses to $X year and then it's "ok".

My opinion is that one needs to really embrace the low cost, diversified "I am not smarter than the market" mentality as a first dedicated priority. Then, maybe, after a long while of a committed portfolio, one can establish a "side" account.

I used to have a "fun" account, but then it wasn't fun after a while, because whether it did well or did poorly, I realized that was all just sort of random, and well if it's going to be random I wanted lights and bells and "free" booze.

So I gave in entirely to my IPS. And instead, my "fun account" is replaced by the excitement of an occasional lottery ticket.

NS

[nisiprius]

How many times have we heard "investors" say "aha, I know what I did wrong and I won't do that again".

That's exactly what I heard from some friends who came back from an Atlantic City weekend saying they'd "won." It gradually transpired that they had won on Saturday, lost on Sunday, and lost more on Sunday than they won on Saturday. But on Sunday they "outsmarted themselves" and "stopped playing our system." So in their minds, they won. Sunday shouldn't really count. Or, it should count as a win, since their system would have won, even if they themselves didn't.

[protagonist]

Interesting posts nonethless. I understand this is a forum based on a certain philosophy.

That may be true for some people here. Many others (myself included) are not followers of a philosophy, but rather are users of a working model because we are not smart enough to come up with a better idea . I, for one, beileve all "isms" are dangerous, and am a skeptic, constantly re-evaluating. I accept , for now, most of the basic tenets espoused here as a good working model for investing...better than others that I have either read about or experienced first hand, but like any good scientist, I am open to changing or replacing this model if presented with new conflicting information or something that seems better. I don't think there is much scientific basis for anything I can think of in the world of finance, except perhaps chaos theory, which has its practical limitations in deciding where to put your money today. I cringe at the term "Boglehead", because it reminds me of "Dittohead" (blind follower of Rush Limbaugh"), "Deadhead" (blind follower of the Grateful Dead), etc....emphasize "blind follower" of anything.

I think it is a bad choice of name because many people here...I would like to think the majority... are NOT blind followers. We have our own nuanced approaches and just do what we do because it seems to make as much sense or more than the alternatives for now.

The point is, you are as welcome here as anybody , and maybe people here will influence your ideas or maybe not. You are not following... you are thinking....or you wouldn't be here in the first place.

Neurosphere said (sorry, but I still don't get how to quote from two posts at once and have it formatted correctly): "I think the 5% rule is a little dangerous. The "TRUE" bogleheads (whatever that is) don't need a 5% rule to determine what percentage of their account they are allowed to "play" with. Just like a true Boglehead knows whether buying $100/year in lottery tickets is a tremendous waste of money which detracts from a long-term financial goal, or whether it merely very cheap entertainment well worth the price. "

I would say (and I am probably stepping on some toes here of people whose ideas I respect...sorry...) that what is really dangerous is being a "TRUE" Boglehead, or a TRUE anything-head for that matter. There is little REAL science behind any of this, only a few decades to a century or so of historical data that can be interpreted in various ways , and from that it is difficult (I would say perhaps impossible) to predict the future. My suggestion, for what it is worth, is read what you see here...there are a lot of very smart people, many with a very strong background in finance and economics (I , for one, do not have that background). Don't believe any of them, but listen. Come to your own conclusions. My conclusion is that the basic framework espoused here likely works better than other basic frameworks to which I have been exposed, so I use it. Will I still use it in ten years? From what I know now, today I would say probably yes. But I would have said that to all sorts of craziness when I was a teenager, and it all seems so laughable in retrospect, so honestly, I have no idea.

[JW Nearly Retired]

Thanks guys,
If I have learned anything in life, you can be good at anything, some will fail, some will win. Its all about what you specialize and learn. The mistake I made happened a while ago, I have been profitable in majority of positions in individual stocks, however like you stated, i made a mistake overweighing myself into 1 position. This was the 2nd time I did this, and vowed to never do it again. I appreciate the advice, I am currently reading Peter Lynch "One Up on all Wall Street", not that its the end all be all, but I do believe you only invest in what you know. So far I have been good and only invest in what I follow daily and know about. I have been trying to expand my knowledge, so I can diversify my portfolio into more sectors.

I find this forum interesting, and actually will begin to read up on this philosophy as well. I think a combo of the strategies would serve me well, I do love day trading and I'm lucky enough to be able to be at a computer to follow all the news. Not that my stocks are all short term, some are long and some are short.

In a nut shell, to prevent having a realized loss of a magnitude, what sounds like a better strategy? This is honestly my thought process, all my positions are doing well, except the one I poured 50% into (stupid), but I did it. If I can sell, I can put that money into another position instead of banking everything on the quarter results (which literally this stock is waiting for) and also make money from the time quarter results come? My issue is I know long term the stock will pass $31 but I dont like my risk position and based on my past performance I can better utilize the funds if available. The reason why this is important is I am trading on Margin, obviously buying power is tied up and if it goes down could initiate a house call.

Experienced investors don't try to avoid a realized loss, they sell all their losers for tax reasons. Trading on margin is well ....... high risk.

Also have to say that your statements above are filled with magical gambler's thinking. e.g., you can be good at anything, majority of stocks are profitable but I made just one mistake, only invest in what I know and follow daily, I know long term the stock will pass $31, so far I have been good, I do love day trading..........

Aside from that one problem stock, your positions on average clearly should be doing very well because the stock market has doubled in the last 4 years. It's not your stock picking. A day-trading chimpanzee would have had very high probability of doing well in this kind market (if they were prevented from betting half their money on one stock) .
JW

[BL]

Just for clarification, I am not including 401K, IRA, Brokerage Account into the Stock Position. I like to think of them as separate, they are all currently managed by my broker. This is the only account managed by me, so far it has been decent.

This might be the time to analyze your accounts and check how they are being managed and what the costs are.

[crowd79]

Sell the stock and invest the rest across all asset classes in an index fund. Next time, don't put all your eggs in one basket.

[Call_Me_Op]

First every investment in equities is a form of speculating, if it wasn't then we would all be millionaires wouldn't we?

No, you are using a definition of speculating that is your own - not the widely accepted definition. But more importantly, you are taking uncompensated risk - that is, accepting much greater risk for no increase in expected return. By "expected return", that does not mean the return the YOU are expecting, but the statistical expectation.

[YDNAL]

I actually wish I had the available cash to purchase another stock but I cant add more money at this time. Should I wait for quarter results, take a loss and buy another stock, or ?

Sprasad03,

I will put aside your last post temporarily until the very end of my post. Above is your original post's ending [question].

To answer your question, people must evaluate what you write and consider the alternative(s). In your 3rd post in this thread you write regarding a "stock picking process" you regard as needing to "specialize and learn, only invest in what you know, follow it daily and know about, and diversify portfolio into more sectors."

If I have learned anything in life, you can be good at anything, some will fail, some will win. Its all about what you specialize and learn. The mistake I made happened a while ago, I have been profitable in majority of positions in individual stocks, however like you stated, i made a mistake overweighing myself into 1 position. This was the 2nd time I did this, and vowed to never do it again. I appreciate the advice, I am currently reading Peter Lynch "One Up on all Wall Street", not that its the end all be all, but I do believe you only invest in what you know. So far I have been good and only invest in what I follow daily and know about. I have been trying to expand my knowledge, so I can diversify my portfolio into more sectors.

I'm now going to disagree with a previous poster to say that [IMO] you don't really know what you are doing.

If you day traded some individual stocks and had other Assets and investments as below, you wouldn't have the level of concern you show over "one mistake" that may cost a couple of thousand dollars - especially since that is par for the course in this type of activity [day trading]. Also, IF we assume that you dedicate the enormous amount of time it takes to research a "particular company," you should have no reason to use a stock broker to manage something as simple as 401K, etc.

Just for clarification, I am not including 401K, IRA, Brokerage Account into the Stock Position. I like to think of them as separate, they are all currently managed by my broker. This is the only account managed by me, so far it has been decent.

Finally, I'm also going to say that you are perhaps not being totally honest with yourself. There is a certain level of lack of credibility in a lot of what you write. Good luck!