Thursday, March 16, 2006

Account Size and Flexibility

I've noticed that as my trading account has grown, it has become easier to make good trades. A large account size allows me to place a smaller amount of capital in each trade and it allows me to increase my divirsification. These factors decrease my risk. Smaller proportional risk in turn, enahnces the decision making process. I find that I make decisions faster and miss less oportunities. I worry less about my positions which helps me to let my winners run, and gives me the patience to let trades work that have gone against me a little bit. Ideally one would risk less than 2% of capital per trade. With a small account this is very hard to do, because of minimum transaction sizes and transaction costs. I'm finally starting to get to the point where I can do most trades that I want to without having to risk too much of my Capital, although I still risk more capital than is ideal in most cases. I'm also still not there, in terms of how much capital I need to really be able to trade every instrument and opportunity that I want to. Just this week I've passed on 2 trades that would have been very good trades to have made in hindsight. I had to pass on these trades because the amount of capital I would have had to risk to do the trades properly was above my comfort level. But over all I like how things are going. I would like for there to be less volatility in my long-term portfolio, however. To that end, I have been accumulating less volatile stocks with a focus on good dividend earners. My goal is to eventually be at the point where stocks like SHLD and GOOG are not such large proportions of my long-term portfolio. I love these stocks, but having them as my biggest positions makes my portfolio more volatile than I'd like. Their proportion in my Portfolio has shrunk but I still have a lot of stock to buy (in other companies) before these become less than 5% of my portfolio since I am not going to sell any of the SHLD or GOOG I hold any time soon.

Tuesday, March 14, 2006

Made in America

I just cought the tail end of a segment on CNBC where some president of an American company (it looked like they sold liquor) was discussing how well his products were selling in China. He said that the Chinese consumers prefer American brands made in America. They see this as a sign of quality. I thought this was interesting because it reminded me of a story that one of my friends told me a few years ago. This friend does business in China and visits the country frequently. On one of his trips to China he was being treated to a "fancy" dinner. His hosts brought out a box of Franzia Wine to the table instead of the usual Chinese Liquor he had been served at less ostentatious restaurants. Note I said "box" not "bottle" for those of you who might have missed that detail. Why were they serving Franzia boxed wine instead of Chinese Liquor on this occasion? Because they said "It is the best selling wine in America so it msut be the best wine in the world!". Does this portend a bright future for the likes of Robert Mondavi or Ravenswood once the average Chinese becomes more afluent and develops better taste in Wine? I suspect that there are a few more years to go before the Chinese move up from Franzia to the better mass-produced American wines, but the story will probably be good for any well known American brand that moves into China, especially those that represent low-cost products here. Cramer has highlighted this allready happening with Starbucks and Kentucky Fried Chicken. I wonder what other products like Franzia sitting on the shelves of my local Walmart are big hits in China?