How to manage your portfolio exposure

There are a few good reasons why most professional well known portfolios do not go over 5% of exposure on any given stock. Algorithm and long term statistical data point to a specific way to preserve your capital and balance your risk reward variable.

Below are some of the rules that helped me generate around 20 % annual return for the last few years.

  1. Rule number one : do not have more than 5% exposure on any given stock.
  2.  Rule number two: do not have more than 20 % exposure on any given sector ( example Energy)
  3.  Rule number three: Do not fall in love with a growth stock. If this stock goes from 5% of your portfolio to 15 % in 2 years, be disciplined and sell some of it to put the exposure back to 5%. And proceed to buy another stock with the capital gain.
  4.  Rule number four: Embrace major pull backs, if one of your stock plunges 40 % in 8 weeks because of non sense short term fears, buy more of the stock. Chances are the stock will rebound and you will make more money over the long run.
  5.  You do not need to read to much specialized media, it will probably make you sell a stock at the wrong time and remember  those websites want to sell subscriptions and publicity ads. Concentrate on the balance sheets of the companies you are holding.

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