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Portfolio performance swinging widely

by Jack Herschey

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Portfolio gains not accounting for risk

Have you noticed that  one month your portfolio is flying high, the next month your account drops -50%?

When a portfolio return swings widely, it is mainly due to 2 things:

1) Position sizing is incorrect

Some people will put all their money into one large cap stock and pray for the best, even a market leader stock can drop 70% within 7 months such as 

PYPL in 2022

Having 70% of your account into one large cap stock is a recipe for diaster. Once the stock starts trending selling becomes a non-option since the investor has lost a bunch of money on it  and is not willing to take the lost.

To position size correctly, one must factor in the estimated return of the stock and most importantly like in any investment, the fact that the investment might go poof! also known as 0

2) Stock not a growth stock

If a stock is not growing and you restrict it with positon sizing, the end result is extreme underperformance with a stock gaining 20% while accounting for 10% of your portfolio, which results in a 2% total gain.

While it is important to position size, it must be positioned within the right growth stock to reap the gains and reduce the risk.

Follow our position sizing rules in Zyne Pro to protect your account from diaster!

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