Veteran investor Shankar Sharma shares funding mantra for 2025 and past – INA NEWS

Shankar Sharma

To maintain their thoughts balanced and sound, traders should settle for managed and restricted losses. For this we now have to know why uncontrolled losses happen in a lot of the circumstances. The explanation for that is easy: extreme attachment to a inventory and incapability to take an aggressive stance on liquidating it. Usually, it’s not the character of a human being that if somebody factors out the identical mistake, he ought to settle for it simply. Our ego all the time overpowers our good intelligence.

loss management components

For this, traders should diversify their portfolio and embrace at the least 35 shares in it. When you’ve got 50 to 100 shares in your portfolio, it might be even higher.

Attachment Per Inventory (APS) Ratio

The largest advantage of this diversification will likely be that it’ll scale back probably the most harmful funding ratio – attachment per inventory ratio (APS ratio). When you’ve got just some shares in your portfolio, your APS ratio per inventory is extraordinarily harmful. When you’ve got 50 shares in your portfolio, your APS will likely be fairly low. It is a bit like having 40-50 girlfriends in your harem. You do not get unhappy due to one, two or 5 losses.

In case your APS ratio is low, you may simply management such losses, as your loss per inventory will likely be a lot much less and its share in your portfolio will likely be restricted. You’ll definitely endure losses, however your capability to tolerate such losses will improve dramatically.

You must all the time needless to say if in case you have greater than 35-40 shares in your portfolio, your hit fee will typically be between 50 to 60 p.c. Because of this you’ll personal at the least 40% of the shares during which you’ll incur losses. Clearly it’s unattainable so that you can obtain a greater strike fee than this for a protracted time period. So, if in case you have a portfolio of fifty shares, 20 shares could cause you loss.

(The writer is a well known investor.)