trading your own portfolio: general outline

preliminaries

size

Let’s assume I have a $100,000 portfolio.  I probably have a core of 85% in index-like products of some sort, with the remainder in, say, five active positions.  Each would be 3% of the portfolio, or about $3,000 each.   I would probably try to trade one of them.  In other words, this kind of trading should be a side show in investment strategy, not the main event.

trading commissions

If this is the amount I want to trade, I can’t possibly do this in a traditional brokerage arrangement.  I’ll be destroyed by commissions.

what can’t be traded easily

I may not be able to do this with some mutual funds or ETFs, which may limit the frequency with which I can buy or sell shares.  They may simply not honor trade requests, or may put them through and then impose financial penalties.  Either way is unpleasant.  So individual stocks are best.

liquidity

If the portfolio is $1 million, then the amount I’d be trading, using the arithmetic above, is $30,000.  If it’s $10 million, it’s $300,000.  At this last level, there may be some thinly traded stocks where getting in and out immediately will be a problem.  My preference would be to avoid stocks like that.  So the universe I would be willing to trade in narrows as the portfolio becomes larger.

taxable or IRA/401k?

Successful trading will likely produce short-term gains.  Arguably, they’d be best recognized in a non-tax or tax-deferred account.  On the other hand, there’s the tradeoff that doing so loses the benefit of taking a tax loss if a trade ends in tears.

Personally, what little trading I do is in a taxable account.  For me, this reinforces the idea that trading is not a structural pillar of my investing but more like embroidery around the edges.

More tomorrow.

 

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