Sizing pscyhology

As my portfolio has grown over the last few years I feel myself struggling to size investments appropriately. Especially short term ones.

A bet that used to be 10% of the portfolio is now about 5 times larger than 2012. On a few occasions this year I’ve identified high probability bets that I’ve profited way too little from. Stanley Druckenmiller was famously most harshly critiqued by George Soros not when he lost money, but when he bet too small on winners.

One such trade occured today when Ahlsell was listed. It is the largest listing in 15 years or so in Stockholm. The price interval in the original offer was wide, 45-58 crowns. This caused several high profile media outlets to recommend not signing for the IPO. As a result the interval was set to 46-50 at the last minute. I made a minor bet here as I felt that the stock is probably worth at least 54-55 given the original interval and the figures in the prospectus. I got stocks for 0,2% of the portfolio at 46 SEK.

When the exchange opened I added about 3% of the portfolio in the stock at 47,5. Then sold at 50,5. Stock now closing at 54.

Nice to make money, but I don’t have such a strong feeling of opportunity on short term trades often and it’s important to make enough money on them. Appropriate sizing would’ve been more like 15% of the portfolio. Next time the goal is to feel uncomfortable:)


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