Smart Portfolio Management III - The $1,000,000 Portfolio (Members Only)
You can’t lose what you don’t have . The reverse is true for people with Millions in a stock portfolio.  Phil points out that the reson you don’t run a large hedge fund trying to make 100% gains is that the people who invest in those funds are more interested in what we call "preservation of capital" rather than generating wealth.  Generally, the people who have $1M of investable cash to play the markets have already achieved a great deal of success, often by taking their own risks along the way.  For most of us, $1M is hard to come by and, while we want to put that money to work - we certainly don’t want it wondering off and joining the circus . As a high net-worth investor, you need to decide how to diversify your assets to suit your long-term goals.  We’re not going to get into that here - let’s just say that if you want to gamble and go for some of our " more exciting " plays, perhaps allocate a portion of the portfolio to those.  Whether that’s 5% or 10% or 30% is up to you but it is good to fence off your risk to a sensible, manageable amount that you really can afford to lose while keeping the bulk of your market allocation well diversified and well-hedged.  I have my own 5% Rule.  Phil’s famous 5% Rule deals with the predictable movement of stocks in their trading ranges but my 5% Rule, which Phil also agrees with is simply " Do not put more than 5% of your portfolio in the stock of any one company! ”   This is so much easier said than done for many reasons!! [1] Transition to Large Numbers Moving from a 5 or 6 figure account to a 7 figure account has a profound impact on many traders. In fact, our friend Dr. Brett refers to the effect “ performance anxiety ” can have on a portfolio and notes that one of the causes is the responsibility felt by traders as larger dollar amounts are traded.   Phil advocates a system of " purging " Short-Term Portfolio gains when they gets too large and shifting money into safer investments in a Long-Term Portfolio - it is good to have a strategy for balancing out your holdings, not just target goals . While it might be acceptable to put 15% of your $10,000 portfolio on that long call you just KNOW will make money, it would be a big No-No to consider the same percent allocation to such a…
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