feedback

Hi,

I was looking to feedback on how to scale my investment strategy. I'm not sure how to think about the risk side of putting more money towards what I have been doing. Right now I have about 25% of my net worth in it. Im not sure how much more to put to maximize while keeping in mind the risk of blowing up. In terms of my style, I do fundamental analysis and buy and hold. Im not a day trader.

Here are my returns and some data, please let me know if any other info required.

Many thanks.

2016 returns 41.46%
2017 52.69%
2018 3.80%
2019 to date 13.83%

annualized vol 22.84%
sharpe ratio 1.55
max drawdown 30.44%

 

So you long S&P 500 with a leverage?

 

For buy & hold, my suggestion is only buy when something appears to be a good bargain, then just take a small position.
The theory works like this, bargains come and go, sometimes the bargain is fleeting, like stock dumps on panic selling of those who don't understand value.
When you buy you could be wrong but if you are market savvy, most of your decisions will be in the money.
Buy lots of small positions and you could invest up to +90% of capital, depending on where the mkt is.
For example, January was a good buying time and I was snapping up bargains, currently holding something like 30 positions therabouts.
Every now and again on earnings season, a position you are holding again comes out with a bumper result, with the experience of knowing this stock you could add to the position.
If price has had a good surge, PE is in the high range, trend appears to be stalling due to lack of buyer interest, that's when to take a profit.
IMO, buy & hold is not really ideal, money can be languishing in a position when there are better offers on the table.
I think 25% net worth in positions currently is a bit too conservative.

 

no leverage. and if that were the case 2018 would be negative.

 

How much volatility in account value do you feel comfortable with? At what levels of volatility do you start to get sleepless nights?
You have now four years of data of your system, from which you can derive the volatility as a percentage of the invested amount. You can use this calculation result to determine which portion of your total net worth you could put into it, without it resulting in you getting sleepless nights.

 

Thanks. This makes sense to me.
My annual volatily is 22.8%. I guess if things are generally going positively i could look at max drawdown monthly or something as another gauge? Thanks again

 

Usually percentage values do not do much to your emotions. USD values do. Does it bother you when your account drops 10 k USD on a day? 50 k USD on a day? 100 k USD on a day? At what level do sleepless nights start?

22.8% annual volatility translates to approximately 1.4% per day. Meaning that an account with 1 M USD will see a daily volatility of about 14 k USD. On a bad day, with three times usual volatility this account will drop about 40~45 k USD. These are just some example values, to give you an impression.