Deployment in trenches | Alpha Quadrant by The Fifth Person

Questions › Category: Investor Psychology › Deployment in trenches

Toni asked 9 months ago

Hi coaches. Following your advice and learning, things are a lot easier to understand, thank you. Over the years I just accumulated cash without any investments so perhaps I’m too cautious to start without being clear of what should be done. My question is regarding the deployment of cash. If we want to hold total of 10 stocks in the portfolio with equal weight around 10% should we if the valuation is cheap immediately deploy whole 10% for a position or split it into 3 trenches (around 30% each)? And if buying in trenches is recommended what is the time frame between the purchases until we close the position at 10%?

1 Answers

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Victor Chng Staff answered 9 months ago

Hi Toni,

You should divide the tranches into three parts. Based on your example of a 10-stock portfolio, each stock will have a maximum allocation of 10%. When deploying, the first tranche will be 3%. If the share price falls by more than 15% from your initial purchase price and the business fundamentals remain intact, you can initiate the second tranche of 3%. If the stock drops further by more than 15% from the recent purchase price, you can deploy the final tranche of 4%.

Mich Oon replied 9 months ago

Hello Victor, I have a follow up question on this. What if the stock price doesn’t fall after we deploy the first tranche of 3%? Or if the stock price falls less than 15% and rebounds higher? In this case do we wait on the sidelines until the stock becomes cheaper than when we first bought (even if it means waiting 1 or 2 years)?

Victor Chng Staff replied 9 months ago

Hi Mich,

If such a scenario happens, I usually wait or let the value of the company increase before considering an upward adjustment.

In the end, it really depends on the valuation. If the valuation is at a no-brainer price, I would allocate a higher or full percentage. To apply this method effectively, you need to thoroughly understand the company and the principles of investing. When you’re just starting out, I recommend following the above method while you build your experience. This approach helps prevent making significant mistakes.