1. cutting losses. Not simply cutting lose at a fixed percentage, but think about bid/ask spread. Before buying anything, think of losses first.
2. asset allocation. Eg, Buy long term stock. Hedge with oil stock. Do not over-diversify. Buy most stocks; small percentage on derivative instruments.
3. fundamental analysis. Know what you are buying. So as to avoid buying something too expensive. Low intrinsic is more important than low P/E.
4. derivatives instruments. Options, warrants. Do risk/reward analysis. HSI futures.
5. trenches allocation and apportionment.
Wikipedia says "Money management is used in Investment management and deals with the question of how much risk a decision maker should take in situations where uncertainty is present. More precisely what percentage or what part of the decision maker's wealth should be put into risk in order to maximize the decision maker's utility function."
At page 163 [180] of "Trade like Jesse Livermore", the author states:
- Establish stops!
- Never sustain a loss of more than 10 percent of invested capital.
- Never meet a margin call and never average down in your buying.
- Turn paper profits into “real money” periodically. Take 50 percent of your big winnings off the table
- Always have cash in reserve.
- Sell the losers, let the winners ride, provided all the factors are positive.
- always cut losses (if price fell below 3 or 4-day MA for short-term speculator; 50-day for medium-term investor; 250-day for long-term investor); let profits run; go after 暴利.
- buy on the way up, not on the way down
- spend about 10% of your fund buying one company, and sell according to Rule No. 11 or 12, or when overall stock market has reached its peak
- buy a company in three phases/tranches
- never let any one stock exceed 15% of your portfolio, hold cash if you can't find good companies to own
- again sell in three phases/tranches
- re-invest the 10% back into new companies satisfying Rule Nos. 1 to 10, unless we are in a bear market.
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