Evaluating your investment

There are many investment strategies that can be used in the capital market but there are certain characteristics to look for in any plan. Before developing a strategy for investing, you must have a set of critreria for judging if it is a good plan or not. The following nine criteria can be used to judge if it is a good plan or not.
　
Let gains run their course but cuts losses
This is a necessary element for any god plan of investing, especially the part of letting gains run their to their full potential. as well as a portfolio is well diversified, you can make the mistake of holding on to your losers, but you should not make the mistake of prematurely cashing on your winners. since we expect our gains over long periods to exceed 100% of our initial investment, the amount of damage that could be done for cutting our winning stocks far surpasses the damage we can get for failing to cut our losses.
A lot has been said on when to cut losses. some analysts believe losses should be cut at 10% while others feel 5% is preferable. But these two positions are rather too short and does not allow a good stock enough room for normal day to day fluctuation. Also at 5-10%, it is easy to get bumped out of a sock only to have it recover and begin soaring again without you being on board.

Aim never to lose more than 5% of your total portfolio on a single stock position
If you aim not to lose more than 5% of your cash on any one position, it will take a long string of uniterrupted losses in order to seriously deplete your portfolio capital. There is nothing magical about the number 5 but the point is that you should greatly minimise your losses so that it does not affect your portfolio. Even in bears, it is improbable that all of your positions would drop to your sell point.

Gradual entry into major positions as long as the positions remain profitable
it is inevitable that any system which attempts to let gains run will eventually build some large positions in a few stocks as the stocks grow in value. this is a good way to develop a large position. Also it is OK to build a position by adding to the position as it advances in value. In fact most professional add to their stock holding as the price moves in their favour.In this way, they maximise the the potential reward for holding a particular stock or basket of stocks. However, some approach makes an investor to plunge a large amount of his capital into and out of the market all at one time. this type of approach must be avoided at all cost. it is risky to enter into any market all at once because it maximises your ability to lose a lot of money in a hurry. One poor timing decision can result in a loss of a large percentage of your capital and those depletion of your capital really hurts your portfolio.


Minimal chance of a large loss from any one position
This is an adjunct to #2, as the gradual entry into a position is a means for minimising the chance of loss from a single bad decision. Again it cannot be over emphasised that massive loss of capital should be avoided at all cost. ideally, no stock should form more than 25% of your total portfolio value.
Clear, predetermmined criteria for initiating, adding to, or liquidating a position
In the heat of battle when you are dealing with your hard earned money, the instruction from your system must be as clear as crystal. if not you'll find yourself making judgement calls that relieve short-termstress, and yet are poor long term decisions.Precise and unambiguous signals and marching orders are the best way to head off the the effects of euphoria and fear. You may still feel these emotions but as long as your system is sound and you adhere to it fastiduously, everything would turn out well. Set exit and entry positions early in the game
Sell a stock once it begins to underperform
While we want to make sure we have a means of riding a stock's trend for as long as it can go, when it becomes clear that the trend is beginning to profoundly weaken or even reverse, we need to have a system which allows for selling the stoclk we can redeploy capital to greener pastures
　
Maximum Naira invested in biggest winners
If a strategy allowsus to build a large position in an issue that is lagging or even losing money for us, there is nothing seriously wrong with that strategy. A successful strategy has to ensure that ourbiggest investments are in our best stoccks not in the worst. Restructure your portfolio as often as the market allows especially during bull markets

Minimum naira invested in losers/ underperformers
This is the converse of#7. it is interesting to note that the only way you can accomplish having too much invested in a lose is to either plunge into it all at once and fail to cut your losses or add to a losing position once it is established as a loser

Not time consuming to maintain
This is important because tim is your most valuable asset after your mind and probably is short supply as well