Hi Clive,
I tend to agree.
I like the higher volatility of individual stocks but as a loss avoidance measure I think you need an upper limit to the amount of funds committed to any one position in the assumption that it could be a total loss.
When I did more of the tech analysis/system trading the rule of thumb was to keep the losses at no more than 5% of a position, preferably less.
If you assume that we are going to hold this stock without stops as we are AIMing it that would mean committing no more than 5% of the portfolio to any individual stock.
So if you have a 100k portfolio max input into a stock would be 5k.
That is more a rule with speculative companies where LDAIM would be the method used.
So if you have a theoretical 10k to play with a stock in a 60/40 equity/cash balance I would start of putting 2k in (LDAIM 1/3 of full AIM) the adding a further 3 buys of $1000 if the price falls, no more purchases after that.
I've so far got 4 out of my 20+ stocks that have hit limits (some failed) AUV,AZZ,NAL,WHN (all with .AX sufffix in Yahoo)
regards
Neil
