How Do You Diversify Stocks in the Fission Service?

With regard to the stocks I trade in Fission… I normally try to get stocks that represent more than one industry… though lately many of the stocks have been pretty tech-heavy. Very soon we’ll be announcing a new LIVE Web Seminar on how to trade RadioActively that will explore diversification in greater detail, but let me go over a few of my diversification rules:

  1. I like to be in more than three, less than thirteen positions. My rule of thumb is that if I’m asked casually what investments I’m in, I can tell you without looking. If I don’t remember any of them, that’s too much bandwidth for me ­čśë
  2. Whatever I do get in, the AT RISK amount in each stock needs to be 3 – 8% of the capital that I commit to that trade. Furthermore, whatever the dollar amount of that AT RISK portion is, I want it to be 0.5% – 2% of my total capital. 1% of total capital is my usual.For example! Recently I got in 300 shares of CREE, with $3.33 per share being AT RISK. For the capital IN the trade, my risk was 5.3% initially (that has since been reduced to 4.8% by using the Income Methods).As a risk to the portfolio itself, the $3.33 per share amount is less than 1% of my total capital. If I were demonstrating RadioActive Trading with exactly $100,000 (the account is now over that), then $3.33 x 300 shares would be just about ideal.It’s a big enough chunk that if my trade does well, it will matter. If it loses the total amount that’s AT RISK, I still don’t get hurt too badly… I still have 99 of 100 marbles I started out playing with.

Other thoughts that Ernie Zerenner has regarding diversification and the RadioActiveTrading Methodology:

  1. With each individual stock position having insurance, there is less need to “diversify” if the reason you are diversifying is to limit the risk to your portfolio that one stock or one industry can have. With RadioActive Profit Machines the risk is entirely controlled from the beginning, no matter what happens in any one company news/management, in an industry, to the US stock markets, or to the global economy.
  2. In the event of a general market decline, just diversifying your stocks won’t really help you at all. If we look back to 2008, almost every stock and every industry and every mutual fund (diversification central) were all down by double digits.

About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.