TJ 170: Portfolio Design

Join Matt and Tim as they discuss the importance of portfolio design and also trading during earnings. Arbitrarily picking stocks that match your trading rules is a way to trade, but not a good way. You can end up with a mis-balanced portfolio in the wrong sectors at the wrong time, too heavily invested in speculation, or other woes that could potentially lead to the implosion of your account. This is why just like you should have trading rules for choosing stocks to invest in, your portfolio should have a set of guidelines as well. Think of it as a strategy for your personal trading rules to follow. In general, there are three portions to a portfolio: cash flow, growth, and speculation. Cash flow is the segment where positions such as covered calls are placed and the passive income generated from the, well, cash flow, goes back into your account to help incrementally grow it over time through the power of compound interest. Growth is where you increase the strength and size of your portfolio with long-term holdings such as dividend-yielding stocks (and more covered calls) to improve your position over time. Buy and hold stocks will generally be in the growth segment of a portfolio. Lastly, speculation is for short-term trades and dealing with commodity futures and such. Again, options can be written against these trades (such as positions in oil), but be sure you have the proper training to not get blown out by an unexpected news event. Among cash flow, growth, and speculation a portfolio also needs balance; both in matching your personal trading style, and in position sizing. Assigning too much of your portfolio to a single trade not only throws your portfolio out of balance, but can potentially be catastrophic. What if that overweighted trade goes against you? What happens then? Here's a good measure on if a trade is imbalanced: if you get anxiety thinking about a specific trade, it's probably oversized for the type of trade it is (along with possibly being a bad trade outright). Follow your rules, and keep your portfolio balanced.

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August's book is Money: Mastering the Game, by Tony Robbins. You can find it on Amazon right here, or check your local library. We'll be doing a live audience podcast on August 25 at 7 PM ET to discuss the book. You'll be able to join us right here: Podcast Room

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For your free 15 day Tackle Trading Pro trial membership, follow this link (https://tackletrading.com/join-pro/) and fill out the form with the coupon code being: theta Also, we'll be giving away a free month of Tackle Trading Pro membership to the best, most interesting review left for the podcast on iTunes!