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Top Dogs: Managing a Large Account

Series 1: Dealing with Drawdowns (11 of 12)

Top Dogs: Managing a Large Account

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment, the eleventh in a planned twelve part series on constructing and managing a portfolio for accounts of $250K to $2.5 million, builds on the previous segments and discusses how to deal with the inevitable drawdowns that will occur in any account. Every trader can learn from this segment and this series.

We frequently discuss the probability of profit. the flip side of that is the probability of loss. An 80% probability of profit implies a 20% chance of a loss. Losses, at least in the form of drawdowns, are inevitable. How we deal with the losses is very important.

Should the frequency of drawdowns or the size of the drawdown be too much we need to make adjustments. Only make adjustments when the number of losers or the magnitude of the losses exceed what was considered acceptable at order entry. A table was displayed of scenarios of too many drawdowns and how to improve your drawdowns that are too large. Tom and Tony discussed what can be done if the drawdowns are too large or too frequent.

Takeaways: Adjustments are warranted when we start having more losses than expected, or when the magnitude of losses is too large Don’t ditch a mechanical strategy during times of stress -- stay the course

Watch this segment of “Top Dogs” with Tom Sosnoff and Tony Battista to see the details of dealing with drawdowns which, when combined with what we have learned in the previous ten segments, can give you a greater chance of success, especially when compared to what the typical advisor would recommend.

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