Portfolio Allocation is an interesting discussion topic that I have been asked time and time again.I thought to share my perspective with all and hopefully I can bring some value to OP readers. I shall try to keep it as simple as possible.
 

There are some guidelines that I follow:

  • I should be in hot sectors
  • I should be well diversified
  • If one ticker goes bankrupt I should have capability to absorb the shock and come back
  • Plenty of cash for adjustments or any exotic opportunity that hardly come by
     

Keeping I mind these guidelines; here is what I broadly use:

  • 20% of portfolio capital always in Cash.
  • 40% of capital for current month of trades and 40% for the next month.
  • For the current moth no more than 8% of overall capital in one trade (exception, unless I am very confident)
  • No more than 7 underlyings for a current month and 7 for the next month (A maximum for 14 tickers).
  • No more than 3% in one speculative trade. 
  • No more than 8% of overall capital for all combined speculative trades and no more than 3 speculative trades at one time.
     

Let’s take an example of US$10,000 portfolio.

  • $2,000 always in cash
  • $4,000 in Current month and $4,000 in next month
  • Maximum of $800 in all speculative trades.
  • Maximum of $300 in one speculative trades
  • Depending upon your trading plan, you may not have opened next months’ trades, and then this is treated as “sacred”. This is next months’ share, don’t touch it.
     

These are just for guidelines and it helps me clear my brain when I have to make choices. This doesn’t mean that I follow this ALL the time, but this is something I always keep handly to help me make decisions. I do make exceptions when I am quite confident (that’s subjective) but exceptions should be well understood.
 

Hope you find this useful. I would surely love to hear your comments about the plan.